The latest preliminary data indicated that the worst could be just over for Denmark's economy, yet GDP and its main components remained below the year-ago levels in the third quarter of 2009.

Statistics Denmark (SD) has released preliminary national accounts data for the third quarter of 2009, as well as revising the data for the previous quarters of the year. According to these latest data, real Danish GDP rose a seasonally adjusted 0.4% quarter-on-quarter (q/q); or 0.6% q/q based on a chain-linked series). This was the first quarterly expansion following four consecutive quarterly declines. In the meantime, data for the previous quarters of the year were revised, and so were data for 2008. Indeed, according to this latest data, Danish GDP declined 0.7% in 2008, an upward revision of a 1.0% decline reported previously. The q/q contraction in the second quarter of 2009 was also revised upwards to show a decline of less than 2.0%, against more than 2.0% estimated previously.

Despite the quarterly expansion in the third quarter, heavy declines in the previous quarters of the year, have meant that GDP is still well below the year-ago levels. Indeed, preliminary estimates of real GDP in the third quarter put it down 5.2% year-on-year (y/y), which is only a minor improvement on 7.1% y/y down in the second quarter of the year—the biggest decline since the Second World War.

The breakdown of data showed some improvement for the private consumption and exports, which both rose on a quarterly basis. Even so, they remained well below the year ago levels. In addition, inventories and total investment spending continued to decline markedly. Specifically, private consumption rose 0.7% q/q—the first quarterly expansion in the past seven quarters. It however was down 4.2% y/y. Consumption was restricted by rising unemployment during the course of 2009, despite lower inflation. In addition, the credit crunch conditions would have made it harder for households to borrow in 2009, while the household wealth also declined due to a fall in property values. All of these seem to have had restricted consumption in 2009.

Government consumption contributed positively to overall growth, rising 2.4% y/y, as government tries to assist the economy by loosening its fiscal policy and in particular increasing its spending.

The data also revealed that total investment continued to decline for the seventh consecutive quarter in the third quarter, and it was down by a sizeable 16.3% on a y/y basis. Total investment had declined (by 4.9%) in 2008 as well, following four consecutive years of booming investment spending.

Finally, the breakdown of data showed that foreign trade has improved during the third quarter as both exports and imports rose albeit very modestly on a q/q basis. Even so, they remained significantly below the year-earlier levels. Exports of goods and services were down 11.5% y/y, while imports declined 14.7% y/y in the third quarter.

Outlook and Implications

This latest data suggest that the worst for the Danish economy might be just over, but the economy remains very fragile and any recovery would be very modest and gradual. Following the latest revised 0.7% contraction in 2008, IHS Global Insight now estimates Danish GDP to have contracted by nearly 5.0% in 2009. GDP is expected to expand a modest 1.2% in 2010, however, boosted by monetary and fiscal policy. Many leading indicators confirm this view, as they have posted gradual increases in recent months. Even so, volatile stock market values, a weakening labour market and declining house prices will limit consumption in the near term. Business investment will also be restricted by the very uncertain global economic outlook and the credit crunch. Finally, exports are also expected to be restricted by lower global demand, unfavourable exchange rate developments and a loss in competitive position due to higher wage growth. On the positive side, household consumption would receive a boost from the expansionary fiscal policy in 2009-2010, and persistently falling interest rates since the end of last year.

Global Insight (Reino Unido)