Danish Economy Stalls in First Quarter as Investments Sink

Denmark’s economy stagnated in the first quarter after businesses invested less and government spending dropped.

Gross domestic product was unchanged from the final three months of 2012, Statistics Denmark said today on its website. That compares with a preliminary estimate of 0.2 percent growth on May 31. The economy shrank an annual 0.7 percent versus a May estimate of a 0.8 percent decline.

Denmark 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 $320 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 shrinking for the second year. The Danish economy contracted 0.5 percent in 2012.

“Denmark is at the hands of the euro,” Jes Asmussen, a Copenhagen-based chief economist at Svenska Handelsbanken AB, said. “Sit tight and wait for the euro area to recover is probably the best we can do. Companies are still not convinced it’s time to invest.”

Cut Forecasts

Fixed investment sank 1.5 percent while government spending declined 2.9 percent, the statistics office said today. Private spending grew 0.1 percent and exports stalled.

Denmark’s government, the central bank and the country’s biggest lender Danske Bank A/S have all cut growth forecasts for this year since May 27. The government and central bank expect 0.5 percent growth in 2013, while Danske Bank sees GDP expanding 0.1 percent. The forecasters kept their 2014 estimates unchanged in the 1.4 percent to 1.7 percent range.

Unemployment has more than doubled during the crisis, as 100,000 industrial jobs were lost, the government estimates. Denmark’s gross unemployment rate was 5.8 percent in May, up from 2.5 percent in July 2008.

Danish Finance Minister Bjarne Corydon said in an interview this month the government will push spending to the limit in an effort to create jobs while still protecting Denmark’s stable AAA rating. Its 2014 budget is due in August.

“Denmark is entrenched in a low-growth economic cycle,” Niels Roenholt, a vice president of macroeconomic research at Silkeborg, Denmark-based Jyske Bank A/S, said in a note to clients. “The large increase in inventories in the first quarter suggests GDP will be negative in the second quarter, as producing too much one quarter will lead to cutbacks in the next.”