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.

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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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.