Danish consumption growth likely to remain strong in 2016

Danish economy was mainly driven by private consumption in 2015. Private consumption had grown 2.1 percent year-on-year and has continued with that momentum in 2016. It rose 0.7 percent between the fourth quarter of 2015 and first quarter of 2016.

Growth in consumption has been widely based with rises in several subcomponents apart from volatile energy consumption, including vehicle purchases and housing. There was a strong growth in car consumption going into 2016. Currently, the unit sales are at a record high. However, in terms of DKK, car sales are around 25 percent down on 2007 as consumers are purchasing smaller cars than ten years ago, said Danske Bank in a research report.

Several factors have been responsible for consumers in Denmark to begin spending again. Firstly, employment in the country has growth strongly. Secondly, real wages are growing and therefore increasing the purchasing power, increasing consumption. Basically, consumption is growing with the help of increasing incomes. Therefore, there is little prospect of huge credit-driven consumption boom that was seen in mid-2000s. A moderate upswing in consumption is expected in the forecast period.

“We expect broad-based consumption growth of 2.1% in 2016, roughly on a par with 2015”, according to Danske Bank.

The consumption growth outlook includes increasing car sales and rising housing consumption as investment in housing starts to rebound again. Second quarter’s preliminary figures were slightly weaker; however, this is probably a temporary slowdown that does not change the overall scenario of the foundations for rising consumption being in place, noted Danske Bank.

Annual growth in consumption this year is expected to be slightly weaker. However, private consumption is likely to expand slightly more in 2016 than in 2017 as increasing prices will slowly start to subdue purchasing power growth.