Denmark: GDP falls back to contraction in Q1
May 31, 2021
Economic activity swung back into contraction in the first quarter of 2021, with GDP declining 1.3% in seasonally-adjusted quarter-on-quarter terms, slightly above the preliminary estimate of a 1.5% drop but contrasting the 0.8% expansion recorded in Q4 2020. On an annual basis, economic activity fell at a more moderate pace than the initial estimate of a 1.7% contraction, recording a 1.3% decline in Q1 following the previous quarter’s 1.5% drop.
Domestically, private consumption declined 4.9% in Q1, swinging from the prior quarter’s 1.0% expansion, as consumers scaled back spending due to renewed restrictions to curb the spread of the Covid-19 virus. Moreover, the slightly higher unemployment rate in the quarter (Q1: 6.1%; Q4 2020: 5.9%) likely weighed further on private spending. Meanwhile, government spending logged a 2.2% drop in the quarter, contrasting Q4 2020’s 5.2% growth. Lastly, gross fixed capital formation recorded a mild 0.5% fall, following the previous quarter’s 1.2% increase.
On the external front, exports of goods and services gained notable traction in Q1, recording a 6.1% expansion, up from Q4’s flat reading. Meanwhile, growth in imports of goods and services slowed to 1.6% in Q1 from Q4 2020’s 2.3%.
Looking ahead, economic activity is seen rebounding to a strong expansion in Q2 and gaining further traction in Q3, following the lifting of virtually all domestic restrictions in mid-May amid an accelerating vaccine rollout. Continued low lending rates, coupled with improving sentiment among consumers and businesses, will bolster household spending and investment, further strengthening activity.
Author: Marta Casanovas , Junior Economist