Denmark has been recording a decent current account surplus. This is partially due to quite a limited corporate investment appetite keeping imports low. But the sizeable surplus is also because of the country’s huge net investment income. This is mostly due to the composition of wealth, said Danske Bank in a research report. Investors abroad have invested huge amount in Danish bonds that create a low return, whereas most of Denmark’s investment outside the country is in direct investments that create a significantly higher return.
In the first quarter of 2016, Danish trade surplus dropped because of a huge fall in balance of services surplus. The effect on trade balance is not quite considerable when service exports decline because of a fall in shipping exports. This is because shipping exports have huge import content. But when service exports decline, like they did in the first quarter, because of exports of other services declining, there is a larger effect. The decline here mainly pulled the trade balance and therefore the surplus of current account was lower at the beginning of 2016.
In this year and next, the trade surplus is likely to continue to be at lower levels as compared to last year as private consumption and investment appetite is expected to gradually rebound and therefore raise imports, according to Danske Bank. On the contrary, net capital income is likely to rise due to the country’s overseas investments surpassing the foreign investment in Denmark.
“All in all, this should contribute to a current account surplus of 6.9 percent of GDP this year and 7.1 percent next year”, added Danske Bank.
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