Revised Data Indicate Danish Economy Was in Recession in Q4

The Danish economy contracted for the second consecutive quarter in the final quarter of 2011, as inventories declined markedly.

Revised data by the Danish Statistics Office showed that real Danish GDP fell a seasonally adjusted 0.1% quarter-on-quarter (q/q) in the last quarter of 2011 and was up only 0.5% year-on-year (y/y). This was a downward revision of preliminary data, which had suggested that GDP rose 0.2% q/q. This new data confirm that Denmark was in recession in the second half of 2011, as GDP declined 0.1% q/q in the third quarter of the year too. Overall, real GDP increased 1.0% in 2011, after a 1.3% increase in 2010.

The breakdown of data showed that private consumption rebounded in the final quarter of 2011, when it rose 1.0% q/q (revised from a preliminary 1.3% q/q) after four consecutive quarterly declines. For the year as a whole, however, private consumption declined 0.5%, following a 1.9% increase in 2010. Public consumption, on the other hand, continued to decline in the final quarter; it was down 0.3% q/q in the fourth quarter, after a decline of 1.5% q/q in the third quarter. As a result, public consumption declined 1.0% in 2011, following modest growth of 0.3% in the previous year.

In the mean time, exports continued to increase during the last quarter of 2011, while imports declined, resulting in a positive contribution from net trade. Indeed, exports of goods and services rose 0.2% q/q and were up 4.1% y/y in quarter four. Imports, on the other hand, declined 1.1% q/q and were up 2.2 y/y in that quarter. Thus, Denmark's exports accelerated in 2011, to post an increase of 6.8%, up from 3.2% in 2010. Imports increased a smaller 5.2% in 2011, following a 3.5% increase in 2010.

The data also show that total investment declined 0.4% q/q in the last quarter of 2011, and was up only 0.4% in the year as a whole. Investment spending declined in 2010 for the third consecutive year, shrinking by a total of more than 20% during the 2008–10 period. Finally, the data also suggest that inventory stocks declined markedly in the final quarter of 2011, following an increase in the third quarter.

Outlook and Implications

In its latest forecast, in early March, IHS Global Insight forecast Danish GDP to stagnate in 2012 and increase a modest 0.9% in 2013, following a 1.0% increase in 2011. Private consumption in particular is expected to remain muted in the near term, as consumer confidence collapsed to a three-year low at the end of 2011, while the willingness to buy is at a very low level. Confidence has been edging up more recently, however, rising steadily in both January and February 2012, while the Eurozone debt crisis has also been easing. A stimulating fiscal policy in 2012, record low interest rates and easing inflation would be supporting consumption to some extent. On the other hand, the labour-market situation has been deteriorating over the course of 2011, with unemployment increasing while wage growth declines. Tight lending conditions, falling stock-market values, a weak labour market and declining house prices will limit consumption in the near term, despite an expected increase in government spending. Indeed, the incoming centre-left government, which unseated a centre-right coalition in the September 2011 election, has pledged 10 billion Danish kroner (USD1.8 billion) in stimulus measures to kick start growth. In the mean time, business investment will also be restricted by the very uncertain global economic outlook and the credit crunch. Furthermore, exports will be restricted by low and falling global demand and a loss in competitive position due to high labour costs. The global growth slowdown is expected to hit Danish exports badly, while the Danish krone has recently strengthened against the euro.