Denmark’s economy grows via consumption

Newly released data hints that Danes are starting to increase their spending after years of weak consumer demand.

Denmark's economy grows via consumption
While official data suggests Danes are becoming more willing to part with their money, a chief economist expressed caution that the change might not last. Photo: Colourbox
The Danish economy swung back to growth in the first quarter, bolstered by private consumption and investment, official data showed on Wednesday.
The Danish economy contracted by 0.5 percent in the fourth quarter of last year, when private consumption data was skewed by insurance companies' payouts following two storms.
The country has been plagued by weak consumer demand after a housing bubble burst six years ago.
The 0.9-percent increase in first-quarter economic output reflected "a recovery in industry, commerce and transport," Statistics Denmark said.
"Private consumption, investment and changes in inventories contributed positively to the increase in demand, while public consumption fell," it said.
The government said on Tuesday that "there are many signs that growth is returning" and that it believes growth will reach 1.5 percent this year and 2.0 percent next year.
Handelsbanken chief economist Jes Asmussen cautioned that growth in the first quarter was partly due to a build-up in inventories and because of the insurance payments made in the previous quarter.
"The impression is that there were a few temporary effects that contributed to growth in the first quarter, which may well fade away in the current quarter," he said, according to news agency Ritzau.

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Denmark’s central bank cuts interest rates in response to strong currency 

The central bank, Nationalbanken, has slightly lowered interest rates in response to the krone’s currently strong position against the euro.

Danish 50 krone notes in production. Denmark has adjusted its interest rates to maintain a consistent value of the krone against the euro.
Denmark has adjusted its interest rates to maintain a consistent value of the krone against the euro. Photo: Ólafur Steinar Gestsson/Ritzau Scanpix

Interest rates for current accounts, savings and loans are decreased by 0.1 percent, to 0.6 percent, 0.6 percent and 0.45 percent respectively.

“The interest rate decrease occurs based on Nationalbanken’s purchase of currency on the market,” the central bank said in a statement.

Nationalbanken is required to maintain a consistent exchange rate between the krone and the euro.

As such the bank is adjusting interest rates with momentum behind the Danish economy, job vacancies at a high level, house prices soaring and inflation conceivable.

“The National Bank has one mandate and one only. And that is to ensure the policy of foxed exchange with the euro. And we have seen in recent times that the krone has been a bit on the strong side and that the National Bank has sold Danish kroner,” Danske Bank senior analyst Olai Milhøj told news wire Ritzau.

“So now the dynamic will be changed a bit be reducing interest to make it a bit less attractive to hold Danish kroner,” he added.

The interest rate change is however discrete enough that it will likely only impact large scale speculators.

The change in the price of a euro is less than one øre (a hundredth of a krone) and is unlikely to impact interest rates offered by banks.