Denmark’s economy grows but public still feels the pinch

An early indicator suggests that Denmark’s economy grew in the second quarter of this year after a downward turn in the first three months of 2022.

Denmark’s economy grows but public still feels the pinch
Denmark's GDP appears to have grown in the second quarter of 2022 but private spending is still being pressed back by inflation, according to an analyst. File photo: Kristian Djurhuus/Ritzau Scanpix

A GDP indicator from national agency Statistics Denmark suggest the economy grew in Q2 of 2022.

After decreasing 0.5 percent in the first quarter of the year, the initial indicator for the second quarter gives a 0.7 percent growth according to the agency.

A decrease in GDP in two consecutive quarters fulfils the technical definition of a recession. This has therefore been averted by the Danish economy in the first half of 2022.

Analysts commented that the second-quarter was larger than had been predicted.

“The growth comes after a first quarter in which things went in the opposite direction, so in the bigger picture it’s more standing still than high growth that is characterising the Danish economy,” Danske Bank senior economist Las Olsen told news wire Ritzau.

Despite the positive development, Danish businesses and the economy in general are still facing challenges on a number of fronts, he also said.

“This must be seen in light of the massive problems many businesses have with acquiring materials and labour, even though it appears that employment is actually still increasing,” he said.

“Businesses could well have sold more, but it’s difficult for them to make [products],” he said.

READ ALSO: Danish businesses repeat call for foreign workers amid labour shortage

Although the economy has grown statistically, many will not have felt this materially, the analyst said. This is because prices have continued to increase and inflation remains high, meaning consumers are still getting less for their money.

Retail activity has fallen because of the high prices, senior economist with Arbejdernes Landsbank, Jeppe Juul Borre, noted with regard to the Statistics Denmark figures.

“Danes are currently experiencing the steepest increases in consumer prices for almost 40 years. That takes purchasing power away from consumers and squeezes private spending,” he wrote in a comment.

“Private spending comprises almost half of the Danish economy and therefore plays a huge role for the economy,” he said.

The hotel and restaurant industries are primarily responsible for the second-quarter growth, according to Statistics Denmark.

The GDP figure is an early indicator, meaning it can be revised once more data is available.

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Danish central bank says house prices will fall and inflation continue in 2023

Denmark’s central bank Nationalbanken predicts a decline in house prices in 2023 and 2024 in a new economic forecast.

Danish central bank says house prices will fall and inflation continue in 2023

The prediction on house prices is included in the National Bank’s latest review of the Danish economy’s prospects.

According to the central bank, house prices will fall by an average of 5.6 percent in 2023. They will continue to fall in 2024, dropping by 1.8 percent.

The latest prognosis represents a departure from the previous forecast issued by the national bank in March, in which it said it expected house prices to increase by 1.7 percent next year and by 2.1 percent in 2024.

READ ALSO: Should you buy now if you’re looking for a property in Denmark?

The economy is expected to have a tough year in 2023, according to the Nationalbanken forecast.

Inflation will be 4.3 percent, the central bank says, meaning another year of stinging price increases, albeit at a lower level of inflation than the 8.6 percent expected for the whole of 2022.

In 2024, inflation will return to a lower level of 1.7 percent.

Although GDP is predicted to be up by 2 percent at the end of this year, it will drop by 0.1 percent in 2023 before a 1.2 percent increase in 2024.

GDP predictions are also more pessimistic than they were in the March forecast, which expected a 2.1 growth in 2023.

“We can prepare ourselves for a period with weakened [economic] activity and a fall in employment,” the director of the National Bank, Lars Rohde, said in statements accompanying the release of the forecast.

“But it should be kept in mind that this is happening [in Denmark] at a conjuncture following the coronavirus pandemic, which caused a very pressed labour market,” he said.

“It is important to bring down the high inflation. That will require a significant tightening of financial policies and that will unfortunately be felt by everyone – companies and individuals,” he said.

“If we don’t get inflation under control, the costs for society will just get even bigger,” he said to DR.

EXPLAINED: What’s causing the highest inflation rate in Denmark for almost 40 years?

Projected high energy prices this winter are among causes for the expected continuation of inflation next year. Interest rates have also been pushed up.

Unemployment is predicted to increase slightly but will remain at a comparatively low level of 89,000 next year, Nationalbanken said.

Denmark’s unemployment rate is lower than in most other European countries, resulting in a labour shortage.

“The combination of great strain in the labour market, high demand and high inflation create the risk of a self-fulfilling wage-price spiral in Denmark. We therefore believe that fiscal policy must be tightened as soon as possible to significantly bring down demand. This should be by more than what the government proposes in the draft budget,” Rohde told DR.