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Danish GDP Shrinks as Household Spending, Investments Drop

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A pedestrian and a cyclist cross a bridge towards Islands Brygge across a waterway in Copenhagen. Photographer: Freya Ingrid Morales/Bloomberg

Feb. 28 (Bloomberg) -- Denmark’s economy contracted in the final quarter last year as consumers cut spending and fixed investment dropped.

Gross domestic product shrank 0.5 percent in the quarter, after growing 0.4 percent in the three months through September, Copenhagen-based Statistics Denmark said today, citing preliminary estimates. Three economists surveyed by Bloomberg had seen GDP expanding 0.3 percent, while one predicted a 0.2 percent contraction. The economy grew 0.6 percent from the same period last year.

Scandinavia’s weakest economy is fighting to surface from a housing bubble that burst in 2008, an event that undermined consumer confidence and triggered a community banking crisis. That’s held back the $340 billion economy, home to Lego A/S and luxury stereo maker Bang & Olufsen A/S, which has suffered slower growth rates than its Nordic neighbors Norway and Sweden.

“The numbers were disappointing as negative growth is always bad news,” Steen Bocian, an economist at Danske Bank A/S in Copenhagen, said in a note. “And when growth is pulled down by a big drop in private consumption, there’s additional reason to be worried.”

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Household spending declined 1.3 percent in the fourth quarter from the previous three months. Fixed investments declined 2.4 percent and exports of goods and services slipped 0.1 percent. Government spending rose 0.9 percent.

“Denmark’s economy is moving on a somewhat fragile and weak path,” Jes Asmussen, an economist at Handelsbanken in Copenhagen, said in a note. Asmussen, the only economist who predicted a fourth-quarter contraction, said he will keep his 2014 GDP forecast of 0.8 percent growth.

The difference in yield between Danish and German two-year government debt reached 10 basis points today, its widest since Feb. 12.

The administration of Prime Minister Helle Thorning-Schmidt has pledged to deliver policies that protect the nation’s stable AAA rating. Investors exiting the euro area during the currency bloc’s debt crisis in 2012 sought refuge in Danish bonds, rewarding the government for keeping its debt load at less than half the euro-zone average.

The central bank, which defends the krone’s peg to the euro, has urged the government to prioritize fiscal restraint to help keep borrowing costs low. The difference between 10-year Danish government bonds and similar-maturity German debt is about two basis points, compared with as high as 20 basis points in September, according to data compiled by Bloomberg.

To contact the reporters on this story: Peter Levring in Copenhagen at plevring1@bloomberg.net; Christian Wienberg in Copenhagen at cwienberg@bloomberg.net

To contact the editors responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net; Jonas Bergman at jbergman@bloomberg.net

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