Denmark: Second estimate confirms a solid Q3 GDP reading in the third quarter
November 30, 2018
According to the latest national accounts data released on 30 November by Statistics Denmark, the economy gained traction in the third quarter, after registering weak growth in the first two quarters of the year. In seasonally-adjusted quarter-on-quarter terms, the economy expanded a solid 0.7% in Q3, up notably from Q2’s 0.2% increase. In annual terms, GDP growth accelerated markedly to 2.2% in Q3 2018, from Q2’s muted revised 0.2% print (previously reported: +0.6% year-on-year). The pick-up in Q3 came primarily on the back of a stronger external sector as the domestic economy posted considerable weakness across-the-board.
The external sector had a solid performance in the third quarter with export growth rebounding sharply to 1.6% over the previous quarter in seasonally-adjusted terms (qoqsa), from the 0.2% contraction in Q2. The recovery was due to a rebound in shipments of goods, while exports of services growth accelerated notably. On the flipside, imports fell sharply in the third quarter, contracting 4.5% qoqsa (Q2: +2.0% quarter-on-quarter seasonally adjusted), with imports of goods plunging in the quarter. The external sector therefore positvely contributed to headline growth.
On the domestic front, economic growth was more subdued. Despite unemployment being stable at a multi-year low, private consumption growth moderated to a one-year low of 0.3% qoqsa in Q3 from 0.5% in Q2. Meanwhile, government spending posted a back-to-back contraction in Q3 (Q3: -0.5% qoqsa; Q2: -0.1% qoqsa). Fixed investment was the largest weak spot of the quarter with spending contracting a whopping 11.9% in Q3. This marked the poorest performance since Q1 2000, although this was mostly on the back of an unfavorable base effect from robust machinery and transportation investment, due to important ship purchases in the freight industry in the previous quarter.
The economy is expected to finish the year on solid footing despite the weak start in H1. Stronger manufacturing and construction activity should help support growth in Q4 and beyond. Although private consumption should pick up into 2019, given accommodative monetary conditions and sustained employment growth, falling consumer confidence bodes poorly for household spending and increasing labor shortages could limit the private consumption impetus. A major slowdown in the global trade environment and a “no deal Brexit”, which would both impact the important shipping industry and other export-oriented activity, as well as likely hurting investment spending, are the key risks to the outlook.
Author: Lindsey Ice, Economist