Danish Economy Returns to Growth as Consumer Spending Gains

Denmark’s economy returned to growth in the first quarter buoyed by a gain in consumer spending and rising inventories.

Gross domestic product rose 0.2 percent in the first quarter, after contracting a revised 0.9 percent at the end of 2012, Statistics Danmark said today. That matched a median estimate in a Bloomberg Survey of seven economists. The economy shrank an annual 0.8 percent.

“Companies may just have ben ahead of themselves building up inventories before demand started to pick up abroad,” said Jes Asmussen, chief economist at Svenska Handelsbanken AB in Copenhagen. “Without the inventory build-up growth had most likely been negative in the quarter. Unless foreign and domestic demand starts to accelerate soon the economy will contract again in the second quarter.”

The economy is struggling to emerge from a burst property bubble in 2008 that triggered a banking crisis and wiped out more than a dozen lenders. The $300 billion economy, home to A.P. Moeller-Maersk A/S, is also suffering from slowing export demand from the 17-nation euro area, which is estimated to contract for a second consecutive year.

Stimulus Needed

Private consumption rose 0.1 percent and inventories added 1.2 percentage point to growth. Exports, investments and public spending all declined in the quarter.

Denmark’s government-backed Economic Council said in a report this week that the European Union should allow the nation to deviate from its structural budget requirements to create room for more stimulus needed to support a recovery.

“The economic situation warrants fiscal easing, and the assessment is that there’s room in the budget to support it,” the council, also known as the Wise Men, said. “The scope for doing so within existing structural budget laws is very limited. It would therefore be best if the EU could allow nations with fundamentally healthy finances to deviate from its structural deficit rules.”

The government on May 27 cut its growth forecast for this year to 0.5 percent from the 0.7 percent predicted in April. It kept its 1.6 percent economic growth forecast for 2014.

The situation “abroad is placing limits on how fast growth can return” to Denmark, Economy Minister Margrethe Vestager said this week in a statement. “For better or worse, our fates are intertwined with our trading partners’. But when things start to improve abroad, we’ll be ready.”

The Social Democrat-led coalition on Feb. 26 pledged to lift annual growth to 2 percent on average from 2014 through 2020, and unveiled plans to create 150,000 private jobs by 2020 through increased public spending and corporate tax cuts.

Denmark’s gross unemployment rate was 5.9 percent in April, up from 5.8 percent in December, the statistics agency said in a statement yesterday.

“The Danish economy is moving sideways,” said Steen Bocian, chief economist at Danske Bank A/S in Copenhagen. “Whatever improvement we see is only technicalities after the big December drop in exports and industrial production.”

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