Project Grønttorvet

Project Grønttårnet

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GDP and consumer spending Denmark’s economic recovery has now entered its fifth year. So far, the recovery has manifested itself mainly in employment growth, whereas Danish GDP growth has been modest. In 2016, GDP growth was driven mainly by sustained domestic consumer spending combined with surprisingly high public expenditure. Danske Bank predicts GDP growth of 1.5% and 1.8% in 2017 and 2018, respectively. Greater Copenhagen remains the unrivalled growth locomotive in Denmark with growth rates double or triple the national average thanks to a large-scale population inflow, employment growth, a healthy business environment and increasing house prices. Consumer spending has picked up, too, as a result, up by 2.1% in 2016. Danske Bank expects consumer spending to increase by 1.6% and 2.0% in 2017 and 2018, respectively. Unemployment and wages Standing at 4.3% as at the end-Q1 2017, the Danish unemployment rate is expected to edge down in 2018. By European standards, the Danish unemployment rate remains very low as the European unemployment rate was 8.5% in 2016. In Denmark, the low unemployment rate has made qualified labour a sought-after resource, exacerbating the wage pressure in several sectors. Inflation In 2017, the Danish inflation is predicted to rise from the remarkable low recorded in 2016 to 1.3%. According to Danske Bank, the prices of services and wage growth continue to increase at a rate close to 2% p.a., indicating that the low inflation is driven largely by low energy prices as well as lower prices in the ICT and clothing industries.

Interest rates In the United States, unemployment is nearing a structural level. Together with the pre-inauguration statements made by President Donald Trump in regard to infrastructure investments and tax cuts, this has driven up inflationary expectations and, by extension, market expectations for the US key interest rate. Recently, the ECB announced that it intends to continue its asset purchase (‘quantitative easing’) programme up until December 2017, although scaling down the monthly volume of asset purchases from EUR 80n to EUR 60bn in April 2017. Combined with record-low short-term interest rates of -0.3%, the ECB is applying most of its available tools to stimulate faster economic recovery and reach the long-term inflation target of 2%. The DKK-EUR peg ties the interest rates determined by the Danish central bank, Danmarks Nationalbank, to those of the ECB. In view of Denmark’s large current account surplus and the strong demand for Danish government bonds, it is plausible that Danish interest rate levels will remain lower than those of the ECB for a significant length of time. In Q1-Q4 2016, the Danish benchmark yield, defined as the yield on a 10- year government bond, dropped from 0.61% to 0.21%. By comparison, the short-term interest rate dropped from -0.07% to -0.19% in the same period. The medium-term outlook remains for sustained low short-term interest rates as the economies of Europe, including Danish economy, are still in a recovery reflected in macroeconomic forecasts by low inflation rates and moderate GDP growth.

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