Denmark: Second estimate confirms solid GDP growth in Q4 2018
February 28, 2019
According to the latest national accounts data, released by Statistics Denmark on 28 February, the economy grew at a downwardly revised 0.7% pace in seasonally adjusted quarterly terms in the fourth quarter of 2018 (previously reported: +0.8% quarter-on-quarter), accelerating from Q3’s revised 0.4% growth (previously reported: +0.7% qoqsa). The acceleration was primarily driven by a rebound in household spending and a solid performance by the external sector. In annual terms, GDP growth clocked in at 2.2% in Q4, down from the revised 2.4% reading recorded in Q3 (previously reported: +2.3% year-on-year).
All told, the economy grew a revised 1.2% in 2018 (previously reported: +1.1% year-on-year). While annual growth in 2018 cooled notably from 2017’s 2.3% expansion, Statistics Denmark notes this is in part due to several technical factors including the accrual of a patent payment in Q1 2017. The institute stated this is artificially inflating 2017 GDP and that revisions could see 2017’s growth revised down and 2018’s revised up as much as 0.4 percentage points.
The domestic economy had mixed results at the end of the year. Private consumption recovered from the 0.1% qoqsa contraction logged in Q3, expanding 0.3% qoqsa in the fourth quarter amid a tightening labor market, and despite a continued decline of car purchases which have fallen consecutively for the last three quarters. Public consumption also rebounded, growing 1.2% qoqsa in Q4 after a 0.8% decline in Q3. On the other hand, fixed investment continued to fall, contracting 0.9% in the fourth quarter (Q3: -12.2% qoqsa), likely weighed on by concerns over the potential effects of Brexit. Investment was particularly hit by a sharp fall in investment of intellectual property products, while residential investment, and machinery and transportation investment both recovered in the quarter.
Lastly, the external sector, while improving overall in the quarter, showed persistent weakness in external demand. Exports rose 0.9% over the previous quarter in the final quarter, down from Q3’s robust 1.7% increase; although shipments of goods picked up modestly, exports of services contracted and weighed on the print. Meanwhile, imports flatlined in Q4, following Q3’s 4.6% contraction. A rebound in imports of goods offset the contraction in imports of services. Overall, the external sector positively contributed to headline GDP growth in Q4.
Turning to 2019, the economy is expected to gather momentum. Historically low unemployment and rising wages should keep consumer spending upbeat, while exports are expected to strengthen after a lackluster performance in 2018. Nevertheless, risks remain skewed to the downside. Particularly, a slowdown in the Eurozone and uncertainty over Brexit could weigh on external demand and further dampen business confidence—which has been on a consistent downward trend—and thus growth in the export-oriented sectors, as well as investment prospects more generally.
Author: Lindsey Ice, Economist