Economy could benefit as consumer confidence surges

Dropping unemployment, low interest rates, tax cuts and a stabilised housing market have all helped improve the Danish economic outlook

Consumers are growing tired of the prolonged financial crisis and have started to spend more according to the latest indicators that could signal an important turning point for the Danish economy.

The consumer confidence rating shot up in June and has remained high in July, according to a new analysis from Statistics Denmark that shows that Danes are starting to worry less about the country’s economic situation.

“For the first time since May 2011, consumers think that Denmark’s economic situation is better than it was a year ago,” Statistics Denmark stated in a press release. “Consumers expect that unemployment will fall over the next year.”

The highest consumer confidence rating in two years could be good news for the economy if it translates into increased spending, as Ritzau reports that half of Denmark's economic growth is driven by private consumption.

Danske Bank thinks looser wallets are likely and predicts that spending could increase by 1.8 billion kroner in the third quarter of 2013 compared to the third quarter of 2012.

“A two million kroner increase is significant,” Steen Bocian, the chief economist for Danske Bank, told financial daily Børsen. “It is more optimistic than we had predicted. So if these consumer figures are accurate, we may have to change our expectations.”

Johan Juul-Jensen, an economist at Nykredit, agreed.

“We definitely think that there is ground for confidence and we also think that the increased consumer confidence will positively impact private consumption in the next quarter,” Juul-Jensen told Børsen.

A number of other indicators suggest that the Danish economy is on the mend. Between April and May, unemployment dropped by almost 7,000 people to 149,399, while car sales rose by seven percent and credit card use rose by 6.3 percent over the past 12 months compared to the previous 12 months.

Industrial production is also improving and was 5.4 percent higher in May 2013 compared to May 2012 according to new figures from Statistics Denmark that pleased the industry lobby group Dansk Industri (DI).

“The development is good news as it improves our expectations for the future of industry,” DI economist Mathias Secher told Politiken newspaper. “We need to continue fighting for better competitive ability.”

Low inflation, tax cuts and low interest rates have all been identified as reasons why consumers may have started to view the Danish economy more positively. But according to Bo Sandemann Rasmussen, a professor of economics at Aarhus University, the stabilised housing market has played the greatest role.

“Housing prices are the most important parameter when assessing the Danish economy,” Rasmussen told Politiken. "That’s why it’s important that the bottom now seems to have been reached. It is one of the indicators that quickly affects consumption, both positively and negatively.”

Recent Europe-wide figures also suggest that the Eurozone is on its way out of recession, especially given that the Spanish economy retracted far less than expected.

“The numbers support our expectation that the Eurozone will return to positive growth in the third quarter,” Christian Mose Nielsen, a market strategist at Spar Nord Bank, told Ritzau.