Statistics Denmark has released GDP figures for Q1 13. Exactly as forecast, the Danish economy grew by 0.2% q/q. The positive figure follows the sharp downturn in the Danish economy in Q4 12 year, when it contracted by 0.9%.


At first glance, it would seem that Denmark’s economy has pulled out of its downturn and is on the road to recovery. However, looking more closely at the details behind today’s figure reveals a somewhat mixed picture. The main reason the Danish economy expanded in the first quarter of the year was inventory investment, which contributed a very substantial 1.2 percentage points to the overall figure. However, inventory building provides only a temporary benefit to the economy, as companies are now presumably well stocked for coming quarters. It is also important to note here that Statistics Denmark has changed its methodology with respect to inventory calculations, which potentially increases the uncertainty surrounding this subcomponent.


We also note that government consumption slowed considerably in Q1 – falling by all of 2.1%, which is by far the largest decline in government consumption since the statistic was first published. Naturally, this had a very negative impact on economic growth. On the other hand, the government’s latest forecast puts government consumption this year at 0.9%, which means there is scope for a significant positive contribution to growth from here in the coming quarters.


Exports of goods and services fell by 0.4% in Q1 – the third consecutive quarter of decline. The recession in the eurozone, Denmark’s most important export market, has clearly dealt exports a severe blow. This piles further pressure on the rest of the economy, as it was exports that kept the Danish economy afloat during much of the crisis despite the weakness in domestic demand.


Domestic demand made a negative contribution to growth of 0.6% overall in Q1. This was of due partly to the big slump in government consumption but also to a fall of 0.6% in investment, which was dragged down by a fall in new public investment of 3.3%. In contrast, private consumption rose slightly, ending the quarter 0.1% higher. The rise was due partly to higher heating bills and more holidays prompted by the unusually cold start to the year, though food consumption also rose quite well – by 2.1%. Hence, the abolition of the so-called fat tax appears to have had a greater impact than expected and has encouraged Danes to buy more and better food in the shops.


Finally, we should also note that employment excluding various leave schemes fell by 6,100 in Q1 – including a fall of 700 in the number of public sector employees. Employment falling is entirely natural given that growth is not higher – and it also underlines that the Danish labour market is still some way from a turnaround despite a couple of positive outcomes among the unemployment market data. Looking ahead, today’s numbers do not cause us to change our view of the Danish economy perceptibly. While the economy got off to a reasonable start this year, we still expect only very modest year-on-year growth of around 0.25% – and nor have the latest figures for Q2 been particularly encouraging. The economies of the eurozone are still.