May 31 (Bloomberg) -- Denmark’s economy unexpectedly contracted for a second quarter, joining bail-out-reliant Portugal as the only other European nation in a recession, after consumers in the Nordic nation reduced spending.
Gross domestic product shrank 0.5 percent in the first quarter, as the government also cut spending amid a widening budget deficit. GDP contracted a revised 0.2 percent at the end of 2010, Copenhagen-based Statistics Denmark said today. Economists surveyed by Bloomberg had expected growth of 0.5 percent in the first quarter.
“The figures are highly surprising,” Steen Bocian, an economist at Danske Bank A/S, the largest Danish bank, said in an e-mail. “The reason for the lower consumption is a combination of higher taxes and higher inflation, driven by raw material prices.”
The smallest Scandinavian economy is struggling after emerging from a recession in 2009 amid declining employment, a slump in real estate and widening deficits. Public and private consumption fell 0.8 percent in the first quarter from the previous three-month period and fixed investments dropped 8.3 percent, the agency said. Employment slid 0.1 percent, after declining 0.3 percent in the fourth quarter.
Danish shares underperformed as Denmark’s C20 benchmark index rose 0.4 percent, lagging behind a 1.9 percent advance in the Euro Stoxx 50 index as of 1:15 p.m. in Copenhagen. Danske Bank shares declined 0.3 percent to 109 kroner.
The yield spread on Danish 10-year government debt versus German same-maturity bonds narrowed to 19 basis points from 21 basis points yesterday, according to data compiled by Bloomberg.
Denmark’s Finance Ministry said yesterday the economy will expand by 1.7 percent this year and by 1.9 percent in 2012, lifting its estimate for both years by 0.2 percentage point, citing a recovery in global trade. The government expects the budget deficit to widen to 4.1 percent this year from 2.9 percent in 2010.
“There are still considerable challenges,” said Rasmus Gudum-Sessingoe, an economist at Handelsbanken Capital Markets in Copenhagen, in a note. “There are threats in the short term from rising energy prices, a strong trade-weighted krone and signs that growth has reached a peak in our most important trading partners, Germany and Sweden.”
House prices, which surged an annual 26 percent in the second quarter of 2006, then slumped 28 percent through the same period in 2009. Nykredit A/S, Denmark’s biggest mortgage lender, said April 6 that house prices will also decline “slightly” this year and stagnate in 2012.
Denmark had 411 home foreclosures in April, up from 390 the month before, the agency said May 5. That compares with a monthly average of 103 foreclosures in 2006, the year with the lowest level since the agency’s data started in 1979.
Denmark will emerge from three years of job losses next year as economic growth reaches 2 percent in both 2012 and 2013, the country’s Economic Council said in a report today. The economy will grow 1.6 percent this year, losing a net 9,000 jobs, and then create 27,000 jobs in the following two years, the council, known as the “Wise Men,” said. The Nordic country lost a combined 145,000 jobs in 2009 and 2010.
The country is also grappling with faster-than-average inflation, spurred by rising electricity and gasoline costs. The annual inflation rate rose to 2.9 percent in April, the agency said May 10. That compares with a 20-year average of 2.1 percent, according to data compiled by Bloomberg.
Seven of Denmark’s 13 benchmark companies have in the last two months reported first-quarter earnings that missed analyst estimates. Danske Bank said on May 10 net income fell to 709 million kroner ($137 million) last quarter, falling short of the 858 million-krone average estimate in a Bloomberg survey.
Denmark pegs the krone to the euro in a 2.25 percent band. The government backed away from a pledge to hold a euro referendum by the end of its term in November as the financial crisis left Greece, Ireland and Portugal in need of bailouts and undermined confidence in the single currency. Prime Minister Lars Loekke Rasmussen hasn’t set a new date for a plebiscite.
Denmark’s central bank raised on April 7 its benchmark lending rate to 1.3 percent from 1.05 percent following a quarter-point move by the European Central Bank that day.
Portugal’s economy contracted 0.7 percent in the first quarter after shrinking 0.6 percent in the fourth, according to Bloomberg data.
Denmark’s GDP grew 1.1 percent in the first quarter compared with a year earlier, the agency said.
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