Denmark’s economy grows with clouds visible on horizon

Consumers in Denmark appear to be spending less, but the economy nevertheless succeeded in growing during the second quarter of 2022.

Denmark’s economy grows with clouds visible on horizon
Denmark's economy managed to grow in Q2 of 2022 despite a fall in consumer spending. File photo: Maria Albrechtsen Mortensen/Ritzau Scanpix

New figures from national agency Statistics Denmark show that Denmark’s GDP increased by 0.9 percent in April, May and June this year.

The growth in the economy comes despite a drop in consumer spending, related to price increases and inflation.

An earlier calculation of GDP for the first quarter has meanwhile been revised from a reduction by 0.5 percent down to a 1.1 percent decrease.

Growth in the second quarter can be attributed largely to good results in the hotel and restaurant sector, according to Statistics Denmark. The sector was affected by Covid-19 restrictions during part of the first quarter, but these were later lifted.

A positive showing by the economy in the second quarter does not make challenging times ahead less likely, an analyst said.

“During the summer we have witnessed a change in temperature in the Danish economy. As such, you can say that today’s figures for the second quarter are a little dated,” senior economist with Sydbank, Mathias Dollerup, told news wire Ritzau.

“Gas and electricity prices have run amok over the summer, and barometers on several of our largest export markets are reporting saturation,” he said.

“With stormy weather in our export markets, the Danish economy is not going to escape a downturn in growth, because we are a small, open economy,” he said.

Finance Minister Nicolai Wammen is scheduled later on Wednesday to present his ministry’s economic projections for the rest of the year, as well as the government’s draft budget.

The ministry is expected to be less optimistic about the economy’s prospects for the remainder of 2022 than it was in May, when a previous projection was published.

The May projection of 3.4 percent growth will be adjusted to 2.8 percent, Ritzau reports.

Additionally, projections for 2023 downgrade expected growth of 1.9 percent to 0.8 percent for the year.

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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.