Research Briefing
| Sep 13, 2022
GDP growth for Denmark downgraded as winter recession looms large
We now expect Denmark to enter a shallow recession in Q3 this year, ending in Q1 2023, due to rising energy costs, exhausted reopening tailwinds, and tightening financial conditions. We have cut our GDP growth forecasts by 1.2ppts to 2.3% in 2022 and by 0.7ppts to 0.5% in 2023. Beyond 2023, it will take several years for GDP to return to our previous baseline.
Research Briefing
| Sep 13, 2022
GDP growth for Denmark downgraded as winter recession looms large
We now expect Denmark to enter a shallow recession in Q3 this year, ending in Q1 2023, due to rising energy costs, exhausted reopening tailwinds, and tightening financial conditions. We have cut our GDP growth forecasts by 1.2ppts to 2.3% in 2022 and by 0.7ppts to 0.5% in 2023. Beyond 2023, it will take several years for GDP to return to our previous baseline.
The Danish economy surprised to the upside in Q2, expanding by 0.7% q/q. This showing raised our 2022 GDP growth forecast 0.4ppts, to 3.5%. Inflation is taking a toll on goods spending, but spending on services likely rebounded strongly in Q2, supporting consumption. Nevertheless, our view of the outlook remains unchanged: We see growth flatlining in H2, before easing inflation and a pause in ECB hikes support a pickup in activity over 2023. 
We have cut our 2022 GDP growth forecast for Denmark by 0.7ppts to 3.1% to reflect the prospect of energy shortages in Europe. As a net importer of natural gas via Germany, who is seeing reduced supply from Russia, Denmark is highly likely to see some degree of industrial gas rationing over the winter months.
Denmark’s inflation outlook is deteriorating rapidly. With the EU announcing plans to wind down imports of Russian oil, higher-for-longer oil prices and soaring food costs has made us raise our inflation forecast to 6.7% from 5% previously. Reassuringly, high-frequency consumption data suggest that the drops in consumer confidence are not being reflected in activity.
GDP surprised to the upside in Q4 2021 with 1.1% q/q growth, according to the flash estimate. The positive carryover effect has raised our 2022 GDP growth forecast by 0.4ppts to 3.4%. All domestic restrictions were eased at the end of January, in line with our view that despite incredibly high Covid cases, the economic hit from Omicron will be mild and short-lived.
