Danish private consumption likely to grow just over 2 pct in 2017 and 2018, says Danske Bank

Denmark’s private consumption began this year on a good note and continues to be underpinned by a buoyant labor market, real wage growth and rising house prices throughout most of the nation. The first quarter consumption growth was mainly due to car sales that were very high in the initial three months of the year. Energy consumption also continued to make positive contribution, while core private consumption accelerated more modestly.

Danes having more money in wallets show that wages have appreciated faster than prices. This effect peaked in 2016 because of the very low level of inflation; however, it will also continue during the forecast period when the inflation is likely to stay below the pace of wage growth, noted Danske Bank in a research report. A modest rise in borrowing is also expected to help lift consumption this year and in the next. This is possible as the Danes have come far in rebalancing their finances after several years when many used their rising incomes to lower debt rather than spend the additional money on consumption, stated Danske Bank.

In all, consumption is expected to grow moderately by just over 2 percent in 2017 and 2018, added Danske Bank. The projection has risks on both the upside and the downside. If borrowing really starts to take off or nascent bottlenecks give higher wage growth than anticipated, the consumption upswing might possibly be even stronger. But if borrowing stays flat, then lower real income growth might signify consumption disappointing.