Denmark: Economy contracts in Q3, posting the worst performance in 6 years

A preliminary estimate released by Statistics Denmark showed that the economy’s third quarter performance markedly undershot market expectations. In quarter-on-quarter terms, GDP contracted 0.6%—the lowest result since Q3 2011 and a weak spot in the widespread recovery sweeping across the Euro area. The result marked a substantial drop from the 0.6% quarter-on-quarter expansion in the second quarter. Growth also slumped on a year-on-year basis, dropping to 1.3% in Q3 from 1.9% in Q2.

On the domestic side, private consumption contracted more sharply (Q3: -0.6% quarter-on-quarter; Q2: -0.4% qoq) due to a marked fall in the purchase of vehicles. Government spending entered negative territory, dropping 0.1% quarter-on-quarter after rising 0.4% in Q2. Moreover, growth in fixed investment slowed to 1.6% quarter-on-quarter (Q2: +2.7% qoq), caused by a notable decline in construction and facilities, and machinery and means of transportation.

The performance of the external sector also deteriorated. Exports plunged at a faster rate of 1.0% compared to a 0.2% fall in the second quarter. Imports also declined more sharply (Q3: -0.9% qoq; Q2: -0.1% qoq. Consequently, the external sector continued to deduct from growth.

Unless growth rebounds in the final quarter, the economy will fall short of meeting the government’s growth projection of 2.3% for this year, as the annual growth rate for this year currently stands at 2.1% following Q3’s deceleration.

The Central Bank expects the economy to grow 1.8% in 2018 and 1.7% in 2019. FocusEconomics Consensus Forecast panelists are factoring in the latest GDP data into their growth forecasts for the Danish economy, with a new Consensus Forecast to be released on 19 December.