Danish economic growth rises but weaker than peer economies

The Danish economy, in the first quarter, had surprised on the upside with GDP growth of 0.5 percent q/q after a disappointing H2 2015. There was an increase in demand as declining inventories subtracted 0.3 percentage points from the growth print. The rise in demand was widely based throughout investment, consumption and exports.

“We have revised our growth expectations for 2016 slightly higher – though with the proviso that a British vote to leave the EU at the upcoming referendum on 23 June would probably trigger a temporary decline in business investment and also dampen private consumption both in the UK and across Europe, including Denmark”, said Danske Bank in a research report.

This would definitely be negative for the Danish economic growth in the forecast period. Even if UK does not leave EU, Denmark’s GDP growth appears to grow just above 1 percent in 2016. Considering that the economy is in a recovery, the projected growth is low. Danish economic growth has indeed been weaker as compared to its peer economies in the post-crisis recovery period. However, it can also be argued that the traditional gauge of GDP in fixed prices gives a pessimistic look of the Danish economy.

In recent years, the terms of trade of the country have been rebounding. Denmark’s export prices have grown more than imports’ prices. The usual growth figures do not capture this. The country is also witnessing increasing returns from its significant investments abroad that are not included in  the GDP but underpin domestic consumption and production, according to Danske Bank. Moreover, the growth in population has also helped production recently as there has been no rise in the working age population.

The actual scenario of the underlying strength of Denmark’s economy is expected to be that the growth rates have been weaker as compared with other western economies. However, productivity and GDP growth have been quite disappointing in most regions globally.