TV2 published an article about current inflation and the expected situation for the coming period, as inflation has risen unusually this year and will continue into next year, giving the possibility of “much lower growth” in the Danish economy for the coming years.
This pessimistic outlook is based on a new analysis from Denmark's National Bank, which has just been published. The bank, whose primary objective is to curb inflation, expects price increases to end at 8.61 TP3T in 2022 and at 4.31 TP3T next year—significantly higher than its annual inflation target of 21 TP3T.
National Bank Director Lars Rohde stated in a press release that this will unfortunately affect everyone, individuals and companies.
The analysis by Danmarks Nationalbank was met with widespread interest because Denmark and most of the world are on the cusp of a new economic reality.
After several years of boom and increasing prosperity, a potential major crisis threatens to turn the economy upside down. Inflation is often cited as the trigger, but the accompanying rising interest rates are also expected to play a crucial role in the economic trajectory.
When central banks like the Danish National Bank need to combat inflation, they typically do so by raising interest rates, which has significant side effects, one of which is that house prices often fall. Therefore, the National Bank expects this to be the case in Denmark as well, where home purchases have increased in recent years and become more expensive.
According to an analysis by Danmarks Nationalbank, a significant price decline is generally expected in the Danish housing market, and there is considerable uncertainty regarding house price developments, with the housing market facing the prospect of a particularly sharp downturn in house prices.
Global headwinds and local cutoff points
Over the past few decades, Denmark's macroeconomy has contracted a few times. For example, when the coronavirus pandemic hit, numerous measures and restrictions led to an economic downturn. In a new forecast published on Wednesday, Handelsbanken predicted that Denmark is facing a recession, meaning the economy will contract. This aligns with the Danmarks Nationalbank's view of the future. The analysis states that significant headwinds from sharp price increases and high interest rates are already hindering economic growth worldwide. However, despite this, the Nationalbank expects Denmark's economy, as measured by GDP, to grow by approximately 21 TP3 this year, followed by a slight slowdown next year. Overall, the Nationalbank writes that there is a possibility of a "temporary pause in growth" in Denmark.
Meanwhile, Danmarks Nationalbank draws attention to the fact that it may actually be worse than the figures suggest: “We are therefore talking about a temporary pause in growth here domestically, since the high growth rate for 2022 effectively masks the fact that GDP will be lower in the fourth quarter of 2022 than it was in the fourth quarter of 2021,” according to the Danmarks Nationalbank analysis.
