Real GDP growth in Denmark will continue to be supported by a steady improvement in external demand, mainly from the eurozone. However, the large debt burden of the private sector will restrain growth over a multi-year horizon.
While Prime Minister Lars Lokke Rasmussen's hardline nationalist stance towards Europe's migration crisis has bolstered public support for the conservative right on Denmark's political scene, we retain the view that the government will remain unstable. The one-party minority government will have a difficult time passing legislation, making it likely that the government will be ousted before its term ends in 2019.
Major Forecast Changes
Taking into account the 0.4% q-o-q real GDP contraction in Q315, combined with inventory buildup in the quarter that is likely to reverse in Q415 and Q116 (without inventories, the contraction would have been 0.6pp greater), we have revised down our 2016 real GDP growth forecast to 1.2% from 1.7%.
The main risk to the Danish economy remains the extremely high levels of household indebtedness. Ultra-low interest rates are underpinning a slow deleveraging process, and as such the economy's vulnerability to rate hikes remains a concern. While we anticipate interest rates to remain very low for several years, any unexpected growth slowdown or interest rate shock would leave the economy vulnerable.
|f=BMI forecast. Source: National Sources/BMI|
|Real GDP growth, % y-o-y||1.3||1.3||1.2||1.4|
|Nominal GDP, EURbn||260.6||233.7||270.4||277.8|
|Consumer price inflation, % y-o-y, eop||0.1||0.5||1.0||1.3|
|Exchange rate DKK/USD, eop||6.15||8.04||6.77||6.48|
|Budget balance, % of GDP||1.2||-2.1||-2.7||-2.4|
|Current account balance, % of GDP||6.2||6.0||5.7||5.5|
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