Frontpage News 2013 The Danes can affo...

The Danes can afford growth

2 September 2013

The Danish economy is on the rise again. Figures from Statistics Denmark prove this. But consumer spending is still lagging behind. If we really want to get the Danish economy going, the Danes must start spending of their record high savings.

New figures from Statistics Denmark show that economic activity measured by gross domestic product grew by 0.5 percent in Q2 2013. Thus, economic growth turned positive after being negative in the previous two quarters.

It is particularly an increase in exports and a rise in government spending and the gross fixed capital formation, which helps to sustain growth. The Danish consumer spending is still lagging behind, and in the second quarter, total private consumption was unchanged, cf. figure 1
 
 
Figure 1. Increasing GDP, but unchanged private consumption

Source: Statistics Denmark
 
 

Consumption rather than savings

The Danish bank deposits have boomed in recent years, and never have we had so much money in the bank as we do now. Consumers have become more parsimonious during the crisis, and despite a higher disposable income, Danes have not spent much.
 
When the Danish consumers put money in a bank account, it is liquid assets, i.e. assets that can be realised immediately and for example used for consumption. Thus, this type of savings gives the individual the opportunity to increase consumption at all times by spending savings.

"From an economic point of view, the large deposits keep the consumption ratio low, which may act as a drag on the growth in Denmark. Especially since banks are experiencing a lack of demand for loans to growth-enhancing investment," explains Chief Economist at the Danish Bankers Association, Niels Storm Stenbæk, and continues:
 
’’Private consumption plays a significant role for the growth in the Danish Society, and if we really want to get the wheels turning, it is necessary that a part of the Danes’ savings are channelled towards increased spending.’’
 
 
Figure 2. The consumption ratio is low 
Source: Statistics Denmark
Note: The consumption ratio is calculated as the individual household consumption expenditure divided by the adjusted gross disposable income, Q1 2000 to Q1 2013.
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