Chief analyst Jens Nærvig Pedersen from Danske Bank was certain of his case when he visited Dansk Offshore's conference 'Security of Supply in Uncertain Times'.
- Yes, we are heading into a recession - absolutely, adds Jens Nærvig Pedersen, when moderator journalist Nynne Bjerre Christensen gives him a bit of a hard time about the statement.
It is a statement that may have significance for all Danes.
- Yes, I am so sure, "says the man who wrote that negative interest rates were here to stay," Jens Nærvig Pedersen says self-mockingly to the hall full of laughing conference participants.
He himself has written that negative interest rates were here to stay. The reason why Denmark is heading into negative growth, according to the chief analyst, comes from outside.
- We are a small drop in the world economy, affected by the war in Ukraine and high energy prices. There is no politician who could have foreseen it, states Jens Nærvig Pedersen.
The unknown inflation
However, there is one thing that the bank analyst notes that makes it more difficult to fight inflation.
- The dilemma is that I am from the year ’85, and I graduated in 2011. My year - and everyone after has never experienced it before in their lives, including our prime minister, Jens Nærvig Pedersen elaborates on Denmark’s prime minister, who was born in 1977 - when inflation was a reality.
The European Central Bank does have a management tool in the form of interest rates, but setting the correct interest rate is a difficult discipline.
- The interest rate may be too high for it – but it may also need to go up even further, says Jens Nærvig Pedersen.
A higher interest rate helps to curb consumption, and high consumption can create overheating of the economy with rising prices and demands for higher wages from employees. This will in turn lead to higher employment, and an upward spiral is set in motion. The advantage of high employment, however, is that there is no or very low unemployment.
One of the economic indicators is very tangible.
- If you take a walk down Strøget, almost all the shops are looking for employees. That will change, he explains about the consequences of inflation and an expected upcoming recession.
However, the interest rate is again central.
- We need to have the interest rate raised so that we don't spend all the money that we haven't spent during corona. The problem now is that the appetite for consumption is the same, even though we can't travel as far for the money as before, explains Nærvig Pedersen.
But the future of the Danish economy will be partly determined in Frankfurt.
- Next year is now, and it depends on whether the ECB breaks the code with interest rates and inflation, he says.
US oil production
The energy market is part of what the analysts at Danske Bank follow.
- I'm surprised that the US hasn't ramped up production after corona, even though prices are skyrocketing, says Jens Nærvig Pedersen and comes up with a plausible explanation himself:
- The political uncertainty is that the politicians in the last presidential election said, "Now we have to get away from fossil fuels." I think the oil companies are unsure whether there is political will to increase production.
That is why the companies end up making a calculation.
- The oil companies do not know whether to pay large dividends to shareholders or invest them in new extraction, explains Jens Nærvig Pedersen.
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