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Denmark set for ‘fragile and moderate’ growth

Denmark’s GDP is expected to increase by 1.7 percent in 2015, leading to “continued, albeit fragile and moderate” economy growth according to a new European Commission report.

Published: 4 November 2014 20:33 CET
Denmark set for 'fragile and moderate' growth
Economy Minister Morten Østergaard and Finance Minister Bjarne Corydon should be set slow but steady growth. Photo: Liselotte Sabroe/Scanpix
The European Economic Forecast report for autumn 2014 predicts that an economic recovery will finally take hold in Denmark. 
 
Pointing to the steady decline in the unemployment rate and a housing market that has seen rising prices since late 2011, the European Commission (EC) expects Denmark’s GDP to grow by 0.8 percent in 2014, following a 0.1 percent decrease in 2013. 
 
The EC predicts 1.7 percent growth in 2015 followed by 2.0 percent in 2016 and doesn’t expect Denmark’s general deficit to exceed the three percent of GDP benchmark set by the Stability and Growth Pact. 
 
The economic forecast points to a decline in North Sea oil and gas production as being a significant factor in Denmark’s slow GDP growth but “when correcting for this downward pressure on GDP growth, a picture of a somewhat stronger recovery emerges”.
 
An increase in consumer spending is also predicted to help Denmark turn the corner on economic recovery. 
 
“The economic conditions are in place for a pick-up in domestic demand, as household disposable income is supported by low interest rates, wage growth and improved labour market conditions,” the EC report reads. 
 
Denmark has also seen improvements in the housing market but the Economic Forecast cautions that “the recovery still appears to be fragile, with large regional differences and a low level of sales”. 
 
On the jobs front, the forecast predicts that Denmark’s unemployment rate will fall to 6.4 percent in 2016, a significant drop from the 7.9 percent level in May 2012. 
 
The EC report comes just over a month after Denmark’s National Bank nearly halved its growth forecast for 2014, predicting that the Danish economy would only grow by 0.8 percent, down significantly from its 1.5 percent growth forecast in June. 

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ECONOMY

How is Denmark’s economy handling inflation and rate rises?

Denmark's economy is now expected to avoid a recession in the coming years, with fewer people losing their jobs than expected, despite high levels of inflation and rising interest rates, The Danish Economic Council has said in a new report.

Published: 30 May 2023 15:46 CEST
How is Denmark's economy handling inflation and rate rises?

The council, led by four university economics professors commonly referred to as “the wise men” or vismænd in Denmark, gave a much rosier picture of Denmark’s economy in its spring report, published on Tuesday, than it did in its autumn report last year. 

“We, like many others, are surprised by how employment continues to rise despite inflation and higher interest rates,” the chair or ‘chief wise man’,  Carl-Johan Dalgaard, said in a press release.

“A significant drop in energy prices and a very positive development in exports mean that things have gone better than feared, and as it looks now, the slowdown will therefore be more subdued than we estimated in the autumn.”

In the English summary of its report, the council noted that in the autumn, market expectations were that energy prices would remain at a high level, with “a real concern for energy supply shortages in the winter of 2022/23”.

That the slowdown has been more subdued, it continued was largely due to a significant drop in energy prices compared to the levels seen in late summer 2022, and compared to the market expectations for 2023.  

The council now expects Denmark’s GDP growth to slow to 1 percent in 2023 rather than for the economy to shrink by 0.2 percent, as it predicted in the autumn. 

In 2024, it expects the growth rate to remain the same as in 2003, with another year of 1 percent GDP growth. In its autumn report it expected weaker growth of 0.6 percent in 2024.

What is the outlook for employment? 

In the autumn, the expert group estimated that employment in Denmark would decrease by 100,000 people towards the end of the 2023, with employment in 2024  about 1 percent below the estimated structural level. 

Now, instead, it expects employment will fall by just 50,000 people by 2025.

What does the expert group’s outlook mean for interest rates and government spending? 

Denmark’s finance minister Nikolai Wammen came in for some gentle criticism, with the experts judging that “the 2023 Finance Act, which was adopted in May, should have been tighter”.  The current government’s fiscal policy, it concludes “has not contributed to countering domestic inflationary pressures”. 

The experts expect inflation to stay above 2 percent in 2023 and 2024 and not to fall below 2 percent until 2025. 

If the government decides to follow the council’s advice, the budget in 2024 will have to be at least as tight, if not tighter than that of 2023. 

“Fiscal policy in 2024 should not contribute to increasing demand pressure, rather the opposite,” they write. 

The council also questioned the evidence justifying abolishing the Great Prayer Day holiday, which Denmark’s government has claimed will permanently increase the labour supply by 8,500 full time workers. 

“The council assumes that the abolition of Great Prayer Day will have a short-term positive effect on the labour supply, while there is no evidence of a long-term effect.” 

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