Strong but inexplicable GDP growth in Denmark

• Data released today showed that the Danish economy grew by 0.5% q/q in Q3 – which was surprisingly good and above our forecast.

• Exports and private consumption disappointed, falling by 0.2% and 0.6%, respectively, from Q2 and Q3. In contrast, fixed gross investment rose an impressive 1.2%.

• Contributions to growth from the various subcomponents add up to a negative growth figure of -0.16%. Hence, statistical uncertainty contributes a very considerable 0.64 percentage points to the overall growth figure. In other words, Denmark has just experienced high but inexplicable growth.

• According to our current growth profile, today’s figures would put growth at 0.8% this year and 1.5% next year.

Today’s GDP figures showed that the Danish economy grew by 0.5% from Q2 to Q3, after making seasonal and inflation adjustments. Exports and private consumption fell by 0.2% and 0.8%, respectively, from Q2 to Q3, while fixed gross investment rose by 1.2%. Public consumption rose 0.1%. While growth is positive news for the Danish economy, our examination of the figures in more detail reveals a fly in the ointment.

Looking at the contributions to growth, exports were a drag of -1.0 percentage points, which when summed with the movement in imports means net exports made no overall contribution – neither positive nor negative – to growth in Q3. Nor did public consumption contribute. Turning to investment, which as already mentioned rose at an impressive rate, it made a 0.2 percentage point contribution to growth. Collating all the subcomponents of the demand and output data, the overall result is that GDP growth was actually negative (-0.16%) in Q3. Hence, statistical uncertainty explains a very considerable 0.64 percentage points of the growth figure. In other words, Denmark’s strong job growth for Q3 14 looks inexplicable and the GDP data look better on the surface than when we dig into the details. This needs not be a major problem, as the national accounts data are rather complicated. Nevertheless, it means that we are unable to explain what is behind the surprisingly strong GDP growth.

The number of people in employment was broadly unchanged, down by 500. However, employment numbers for the previous quarters were adjusted down, so job growth is not as strong as previously thought. Employment grew by 13,000 from Q4 last year to Q3 this year and a total of 22,400 new jobs have been created since the beginning of 2013.

Given today’s data and our current growth profile, Denmark is set for GDP growth of 0.8% this year and 1.5% next year. Thus, 2014 looks likely to be the first year since 2011 with positive GDP growth in Denmark.