Aug. 29 (Bloomberg) -- The chances of Denmark’s economic forecasts being supported by reality grew more remote this week after second-quarter data showed a surprise contraction that suggests the projected recovery has been derailed.
Gross domestic product shrank 0.3 percent last quarter, when economists surveyed by Bloomberg had foreseen a 0.3 percent expansion, according to figures published by the statistics office today. For the government to meet its 2014 target, annualized GDP growth will need be more than 5 percent in the final two quarters of the year, said Jes Asmussen, chief economist in Copenhagen at Svenska Handelsbanken AB.
“The chances of output meeting the government’s GDP target are so far out in the woods that I’m afraid there simply isn’t a wood that big,” Asmussen, who was the only economist of those surveyed by Bloomberg to predict a contraction last quarter, said by phone. The growth rate predicted by the government now “seems very unlikely as the current quarter is already looking very weak,” he said.
The Economy Ministry said this week it’s sticking to growth forecasts for 2014 and 2015, predicting an expansion of 1.4 percent this year and 2 percent next year. The government says it’s pushing spending to the limit of what’s allowed under budget rules to prop up Scandinavia’s weakest economy. Growth in the euro region has stalled as its three-largest economies weakened, led by a contraction in Germany. The development suggests Europe may still have far to go before recovering from its debt crisis.
Denmark’s economic policy won’t be influenced by quarterly data, Economy Minister Margrethe Vestager said today in an e-mailed reply to questions. “Today’s numbers confirm that the road ahead isn’t straight forward. We’re not expecting a real economic upturn but a gradual and rather slow recovery.”
Denmark is struggling to emerge from the fallout of a 2008 burst housing bubble that triggered a community banking crisis and undermined consumer sentiment. While there are some signs households are on the mend -- a report this month showed consumer confidence rose to its highest since 2007 and the GDP data show spending up 0.3 percent -- exports are still suffering. Denmark’s sales abroad fell 1.6 percent last quarter.
“Exports and investments are faltering and Denmark is clearly experiencing the same set-back seen elsewhere in Europe,” said Las Olsen, a senior economist at Danske Bank A/S. “In a small economy like Denmark’s there’s always an element of randomness as individual items can cause big swings. But this shows Denmark being surprisingly hard hit and suffering at least as much as Germany from the slowdown.”
Some of the country’s biggest brands, including brewer Carlsberg A/S, have seen their profits suffer as a result of soured economic ties with Russia following the country’s incursion into Ukraine.
“Things are bad with the Danish economy,” Helge Pedersen, chief economist at Nordea Bank AB in Copenhagen, said in a note. “Indicators show the economy is slowing down in the third quarter as industry in particular is hit by the Ukraine conflict.”
Prime Minister Helle Thorning-Schmidt has pledged to promote stable finances to defend Denmark’s AAA credit rating while stimulating the economy as much as possible within the constraints of a 3 percent budget deficit cap set by the European Union. Denmark will stretch its 2015 budget to match that and could breach it if growth misses estimates, Nordea says.
Investments fell 1.1 percent last quarter, the statistics office said today. Inventories added 0.2 percentage point to growth.
To contact the reporter on this story: Peter Levring in Copenhagen at email@example.com