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Fast Comment DenmarkStrong finish to 2017, but a messy picture

  1. GDP grew 1.0 percent q-o-q in Q4 - stronger than expected
  2. Large inventory fluctuations have affected the outcome, and in H2 quarterly GDP growth averaged only 0.1 percent
  3. For 2017 growth ended at 2.1 percent, but without a one-off payment from abroad growth would only have been 1.7 percent
Strong growth, but with caveats
GDP growth was a solid 1.0 percent in Q4 last year and, as such, leaves a solid impression of the strength of the Danish economy. The development throughout 2017 must, however, be characterised as somewhat messy. Thus, the strong ending to the year should be seen in the light of a downward revision to growth in Q3, from -0.5 percent to -0.8 percent q-o-q. It is especially large inventory adjustments that are behind the significant fluctuations. In Q3 inventories subtracted 0.8 percentage points from GDP growth and added 0.9 percentage points in Q4. Furthermore, the figures are also influenced by large swings in private consumption due to developments in car sales. Thus, private consumption contracted by a downward revised 1.1 percent q-o-q in Q3 and increased by 1.3 percent q-o-q in Q4. Looking at the development in H2 2017 we get a somewhat weaker impression of economic development as average quarterly growth was a meagre 0.1 percent.
One-off payment from abroad adds to the murky picture
Development in H1 is also a murky picture, with significant revisions to the numbers. This is primarily due to a classification of a large one-off payment for the use of a Danish owned patent as a service export, which was booked in the national accounts in Q1 last year. This lifts quarterly growth in Q1 by 1.8 percentage points and lowers it by the same amount in Q2. Seen from above, this actually means that the economy was in a technical recession in 2017, with two consecutive quarters of negative growth in Q2 and Q3, but that is not an accurate picture. Currently there is a large degree of uncertainty with regards to the booking of this one-off payment, and we do expect some significant revisions to the figures going forward. The one-off payment does, however, have quite a significant impact on the overall growth picture. As it stands, total GDP growth ended at 2.1 percent in 2017, but without the one-off payment growth it would have been only 1.7 percent, which is a bit disappointing. The lift to GDP growth in Q1, which is expected not to reoccur, and the subsequent decline in GDP also means that the total growth picture for 2018 will be negatively affected. Even if quarterly growth was a healthy 0.5 percent on average during 2018, total growth for this year would only end up at 1.4%, given current available information. Development in housing investments is also a messy picture, as Statistics Denmark has not incorporated the recent update on construction activity in this GDP release. According to the national accounts, housing investments rose an impressive 5.1 percent q-o-q in Q4, but large revisions to this outcome must also be expected in the revised national accounts.
Difficult to make steadfast conclusions
The upshot is that we believe it is hard to get a real overview of the strength of the Danish economy based on the messy GDP figures. Thus, we will not draw any steadfast conclusions on the back of today's figures and will await future revisions in order to hopefully get a more correct impression of developments. Our overall view is still that the Danish economy is in a relatively healthy state, which can also be seen in the strong performance of the labour market. Given the available information at this point it does, however, seem likely that GDP growth in 2018 will be somewhat lower than currently expected (1.7 percent).


Jes Asmussen

Chief Economist Denmark

Denmark and The Netherlands

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