Denmark Economic Forecast

The Danish economy opened 2023 on a softer footing; however, it performed better than previously anticipated. GDP expanded 0.3% quarter on quarter in Q1, halving from Q4’s 0.6% increase, according to a preliminary estimate. The construction sector dragged on overall growth, while the manufacturing and utility sectors supported the GDP rise. Private spending should have boosted GDP as well; in Q1, average inflation moderated to a one-year low and total employment grew 0.4%, likely contributing to the gradual improvement in consumer sentiment throughout the quarter. Less positively, investment was likely capped by borrowing costs increasing to the highest level since early 2009 in Q1. Turning to Q2, GDP growth is expected to flatline. In April, inflation eased further, but the manufacturing PMI revealed business conditions continued to deteriorate sharply.

In April, inflation cooled to a 14-month low of 5.3% (March: 6.7%) as price growth for housing and utilities slowed. Similarly, core inflation softened to 6.1%. Higher interest rates and slowing activity will keep a lid on price pressures, which should continue to ease by end-2023. That said, inflation this year will average more than double the ECB’s 2.0% target.