Denmark: Growth hits record high in Q3
Economic activity rebounded in the third quarter, growing 4.9% on a seasonally-adjusted quarter-on-quarter basis, contrasting the 7.0% contraction seen in the second quarter and marking the largest expansion on record. On an annual basis, economic activity contracted at a more moderate pace of 4.0% in Q3 compared to the previous period’s 8.1% fall.
Domestically, the upturn was broad-based and reflected the gradual lifting of Covid-19-related measures throughout the period. Private consumption bounced back, expanding 4.2% in seasonally-adjusted quarter-on-quarter terms in Q3 from the 6.3% contraction in Q2. However, this came amid a higher unemployment rate in the period (Q3: 5.4%; Q2: 5.1%), likely tempering the uptick in consumer spending. Meanwhile, government spending also rebounded, growing 1.0% in the quarter (Q2: -1.7% s.a. qoq) as fiscal stimulus measures began to flow into the wider economy. Lastly, fixed investment grew 3.3% in Q3, swinging from the 6.4% contraction logged in the prior quarter.
On the external front, exports of goods and services grew 5.3% in the quarter (Q2: -11.6% s.a. qoq). In addition, imports of goods and services expanded at the fastest pace in over 14 years, expanding 5.4% in Q3 (Q2: -11.9% s.a. qoq) on the back of improving domestic demand.
After recovering some ground in the third quarter, the economy could lose steam in the fourth quarter, due to the second wave of the pandemic and subsequent reimposition of restrictions. Recovery in key trading partners will be important for Denmark’s large external sector. However, prospects of a vaccine bode well for a robust recovery in activity in 2021.
Commenting on the outlook, analysts at Swedbank noted:
“GDP is expected to grow at a moderate pace in the coming quarters as new containment measures are implemented in Denmark and abroad. […]. Falling services exports and low investments will weigh on growth going forward. New investment plans of the manufacturing industry decreased markedly in the second quarter and remained low in the third quarter. […]. While most of the direct support measures to businesses have been phased out, fiscal policy continues to be very expansionary. The disbursement of the frozen holiday allowance is expected to support the recovery going forward. Public debt will rise significantly, although it will stay well below the EU limit of 60%.”