Danish Economy Switches Into Growth, Analysts Skeptical

01 Jun 2013

COPENHAGEN: The Danish economy, stagnating since the middle of 2010, switched into growth in the first quarter of the year, expanding by 0.2 percent from output in the previous quarter.

The Danish statistics office which published the data described this outcome as "weak", noting that on a 12-month comparison, the economy shrank by 0.8 percent.

Denmark is a member of the European Union but not of the eurozone.

At Capital Economics in London, Europe economist James Howat commented: "The Danish economy rebounded in the first quarter after its weak finish to last year, but we doubt that the recovery will last long."

He said that the growth was driven largely by a "sharp rise" in inventories which was the most volatile component of gross domestic product, contributing 0.9 percentage points to growth but "this support is likely to be only temporary".

Denmark was strongly placed regarding the state of its public finances and this could support government spending, he said.

He also noted that in the first quarter there had been "the fastest rise in household spending since end-2011, perhaps reflecting recent tax reforms to boost disposable income".

But Howat argued that "consumption alone will struggle to power growth over the next 12 months given households' heavy debt burdens".

Exports had fallen again, suggesting that the economy was being hit by the strength of the euro, since the krone was pegged to the euro, and by weak demand in the eurozone.

Howat said that the consensus forecast by analysts for the Danish economy to grow by 0.7 this year was "too optimistic" and the outcome was more likely to be shrinkage of 1.0 percent.

At Nordea bank, economist Jan Stoerup Nielsen commented that the latest growth was "solely due to a big increase of inventories which rose by 1.2 percent" and that "employment continues to fall".

The economy has been in the doldrums for three years. Consumption internally is weak and exports are suffering from weak activity in the European economy.

Source:http://www.brecorder.com/world/global-business-a-economy/121907-danish-economy-switches-into-growth-analysts-sceptical.html