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Denmark: Growth is still elusive

Fourth quarter GDP, released after the February issue of Nordic Outlook, dropped 0.7%. The main negative contribution was exports on the back of lower global growth. As in the third quarter, corporate investments were a counterbalancing factor. Public expenditure rose markedly and spending is catching up with budgets. Private consumption has been flat for a year as real wages and employment have fallen. Consumer confidence points to a continued subdued trend, but a large decline in inflation has recently turned real wage growth positive, thus improving the outlook. The current account surplus has dropped in recent months compared to most of 2012. This is partly related to slower global growth, but also reflects a seasonal pattern in transfers that will impact March numbers as well. The underlying positive trend is intact. Due to weakness late in 2012, we have revised our 2013 growth forecast downward to 0.3% from the previous 0.7%. We expect a gradual recovery to 1.7% in 2014 due to a global recovery. Our inflation forecast for 2013 has been revised downward from 1.5% to 1.1%.

FRIDAY APRIL 12, 2013

Jakob Lage Hansen X-asset Research +45 33281469

Key data Percentage change

2011 2012 GDP* Unemployment** Inflation* Government deficit**


Source: SEB

2013 2014 0.3 5.1 1.1 -2.0 1.7 4.9 1.3 -1.0

1.0 4.1 2.7 -1.8

-0.5 4.7 2.4 -4.0

* Percentage change, ** Per cent of labour force, *** Per cent of GDP

Economic Insight

Unemployment rates are moving sideways. This partially reflects a drop in the labour force as some people have lost their right to jobless benefits due to prolonged unemployment. The uncertainty in the euro zone after the Italian election and the Cyprus bail-out has supported the krone. The key interest rate hike in January has also been a factor. Global trends have driven down Danish bond yields. Mortgage costs are low despite mortgage institutions increasing fees. The large private debt load is thus not an acute problem. A new type of mortgages was introduced in 2003 with a 10 year non-amortisation period. This means that the first borrowers are about to start making mortgage principal payments, thus increasing their loan servicing costs markedly. This has sparked worries in some circles about macroeconomic implications. We view it as a minor issue, since at this stage relatively few mortgage borrowers will reach a debt servicing level that threatens their finances. The minister for business and growth and the new central bank governor are among those who advocated that access to non-amortisation loans should be more limited going forward. There is already a change of practice among some mortgage institutions to encourage this. Non-amortisation loans were a driving force behind the housing bubble, and curtailing them makes sense from a financial stability point of view.

Non-amortisation mortgages dominate


Share of residential mortgages
70% 60% 50% 40% 30% 20% 10% 0% 2003M01 2005M01 2007M01 2009M01 2011M01 2013M01

Variable rates

Non-amortization
Source: Danmarks Nationalbank