Fra Handelsbanken:
Recovery still at a snail’s pace
The preliminary GDP figures for Q4 showed an increase in economic activity of 0.2% q-o-q in Q4 2015. This was higher than our estimate of a flat performance, but the pace of economic expansion is still disappointingly slow. The reason that GDP was a bit stronger than we expected was mainly due to inventories being less of a drag on the overall economy. Thus, inventories only subtracted 0.1 percentage points from GDP growth, whereas we had expected a 0.3 percentage point drag. The lack of a larger fall in inventories increases the risk that inventory corrections could dampen economic growth further in the coming quarters.
Private consumption a bright spot – but exports clearly disappoint
For full-year 2015, real GDP expanded at a very moderate rate of 1.2%. This was a slowdown from last year’s expansion of 1.3% and it highlights the snail’s pace at which the recovery has been shaping up since the recent great financial recession. The slow growth pattern is, however, well in sync with our long-term view of a prolonged low-growth environment for Denmark, and the 1.2% GDP growth in 2015 was well in line with our expectations. For 2015 as a whole, private consumption was the bright spot with an expansion of 2.1%. However, private consumption growth slowed from 0.8% in Q3 to 0.2% q-o-q in Q4, and the recent drop in consumer confidence indicates that household spending was off to a weaker start in 2016. Exports, on the other hand, comprised the main disappointment in 2015. Despite a welcome 0.1% q-o-q rise in exports in Q4 following sharp drops in the previous quarters, exports ended up falling by 0.9% y-o-y in 2015. Looking at global developments and especially with the risk of a slowdown in the eurozone’s GDP growth, we do not expect exports to pick up meaningfully in 2016 either. As a consequence, there is a clear risk that our already subdued outlook for 2016 will have to be revised down. We expect GDP growth at 0.9% in 2016, but at this point growth of 0.25-0.5% seems more likely.
In dire need of investments
Public spending fell in Q4, whereas public investments rose. However, the latter is most likely a temporary blip in a long-term winding-down of public investments, which were brought forward as an emergency crisis measure. Housing investments continued their downward spiral, but fixed business investment rose nicely in Q4. This followed a sharp drop in Q3, and the swings are associated with volatile investments in ships. Overall, fixed investments rose by a meagre 0.8% in 2015, continuing the investment dearth in the aftermath of the recession. With public investments expected to contract further, it will be crucial that fixed business investments pick up further. In the short run this is necessary to bolster growth, but in the longer run it is also necessary to enhance productivity. Thus, it is becoming increasingly clear that the Danish economy has a productivity problem, as the combination of weak GDP growth and stronger employment continues. This cannot continue forever without the economy running out of steam.
