GDP contracts at softer-than-expected pace in Q3

A second national accounts release revealed the Danish economy fell at a smaller rate than initially estimated in the third quarter, with GDP contracting 0.1% on a seasonally adjusted quarter-on-quarter basis. The result was both an improvement from the 0.9% contraction recorded in the second quarter and above the preliminary estimate of a 0.3% decline. Despite the mild improvement, the economy still entered a technical recession in Q3.

The smaller quarterly decline reflected an improvement in domestic demand: Household spending rose by 1.3% in seasonally adjusted quarter-on-quarter terms in the third quarter (Q2: +0.7% s.a. qoq), which marked the best reading in two years. Similarly, fixed investment growth accelerated to 3.6% in Q3 from the 1.2% expansion recorded in the prior quarter. Moreover, public consumption bounced back, growing 0.8% in Q3 (Q2: -0.3% s.a. qoq). On the external front, growth in exports of goods and services improved to 5.1% in seasonally adjusted qoq terms in the third quarter (Q2: +3.2% s.a. qoq), which marked the best reading since Q4 2021. In addition, growth in imports of goods and services picked up to 11.3% in Q3 (Q2: +4.9% s.a. qoq). Consequently, the external sector detracted from the overall GDP reading. On an annual basis, economic growth lost momentum, cooling to 0.3% in Q3 from 0.8% in the previous period. Q3's reading was the weakest since Q4 2020.

Our Consensus is for the economy to exit technical recession and post a shallow quarter-on-quarter expansion in Q4 2023. The economy is still expected to tally a healthy increase in 2023 as a whole.

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