The slightly smaller-than-expected 0.6% q/q increase in Danish GDP in Q4 left the economy 3.1% smaller than it was in Q4 2019. Although activity is likely to slow in Q1 – on the back of tighter virus restrictions and a renewed slump in the euro-zone – Denmark is better placed than most.
- The slightly smaller-than-expected 0.6% q/q increase in Danish GDP in Q4 left the economy 3.1% smaller than it was in Q4 2019. (See Chart 1.) Although activity is likely to slow in Q1 – on the back of tighter virus restrictions and a renewed slump in the euro-zone – Denmark is better placed than most.
- Today’s data are preliminary and a delay in the release of company purchases data – usually included in this estimate – means there is more uncertainty surrounding it than usual. But the press release noted that growth was mainly driven by the increase in industrial production. This is not surprising – we already knew from monthly data that, in 3m/3m terms, industry expanded by more than it did in Q3. (See Chart 2.)
- The expansion in GDP in Q4 means that the economy contracted by 3.7% over 2020 as a whole. While the drop in output was bigger than those seen in Sweden (2.8%) and Norway (2.5%), it was still smaller than in 2009 (4.9%) and less than the euro-zone’s 6.8%. (See Chart 3.)
- Activity is likely to have taken a leg down in Q1. Admittedly survey data, such as the ESI, suggest that activity accelerated in January despite tighter virus containment measures. (See Chart 4.) And schools have recently reopened in the country. But other restrictions (e.g. the closure of all restaurants and durable goods stores) will remain in place until at least the end of February. This will weigh on domestic demand while the renewed slump in the euro-zone – a key trade partner – will keep a lid on net trade.
- Having managed to keep a lid on Covid-19 infections, Denmark remains better placed than most European economies. And its relatively fast vaccination programme means that, similar to last year, restrictions may be eased there sooner than elsewhere. Along with Norway, we think that Denmark will regain its pre-pandemic virus level quicker than most European economies, later this year.
Chart 1: GDP (%y/y)
Chart 2: Industrial Production & GDP
Chart 3: Annual GDP (% y/y)
Chart 4: ESI & GDP
Sources: Refinitiv, Capital Economics
Melanie Debono, Europe Economist, email@example.com