Denmark’s Economy Returns to Growth as Consumption Recovers

Denmark returned to growth in the first quarter as investments and consumer spending propelled a recovery for Scandinavia’s weakest economy.

Gross domestic product increased 0.9 percent in the first quarter, after slipping a revised 0.5 percent in the three months through December, Copenhagen-based Statistics Denmark said today, citing preliminary data. Seven economists surveyed by Bloomberg on average estimated a 0.6 percent gain. Private consumption rose 2 percent in the quarter.

“Denmark is making the long hard pull to leave the crisis behind,” Helge Pedersen, chief economist at Nordea Bank AB, said in a note. “Domestic demand is on the move and international indicators suggest the most important export markets in Germany, Sweden and the U.K. have gained momentum.”

Denmark is emerging from the fallout of a 2008 burst housing bubble that triggered a community banking crisis and undermined household sentiment. A report this month showed consumer confidence rose to its highest since 2007. Private spending accounts for about half Denmark’s $350 billion economy.

Tighten Policy

This week Denmark’s Economy Ministry and the Economic Council both raised raised growth forecasts for 2015 to 2 percent. The government said it intends to tighten fiscal policy and lower public investments next year. Both entities said the economy will expand by 1.4 percent this year.

Prime Minister Helle Thorning-Schmidt has pledged to promote stable finances to defend the AAA credit rating while stimulating the economy as much as possible within the constraints of a 3 percent budget deficit limit set by the European Union. Denmark will come “dangerously close” to breaching that limit in 2015 if growth falls short of forecasts, the Economic Council said this week.

The yield on Denmark’s 1.75 percent bond due 2025 fell 2.2 basis points to 1.697 percent, compared with a 2.1 basis point decline on similar-maturity German bunds.

Private consumption had declined 1.2 percent in the final quarter of 2013 as payouts from insurance companies following two storms were counted as negative consumption by the statistics office.

“The underlying trend is unchanged -- it’s still a half-paced recovery,” Jes Asmussen, a Copenhagen-based economist at Svenska Handelsbanken AB, said in a note. “What’s changing the image of the first three months of the year is some large ship investments made in the quarter.”

Investments grew 3.5 percent in the first quarter, the statistics office said today. Exports advanced 1.3 percent and inventories added 0.3 percentage points to growth.

The economy grew 1.4 percent in the first quarter from the same period last year.

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