Denmark Enters Recession on Less Spending

Denmark unexpectedly entered a recession as the economy contracted for a second quarter as consumers and the government cut spending amid rising prices and a widening budget deficit.
Gross domestic product shrank 0.5 percent in the first quarter after contracting 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, according to the average of four estimates.
“The figures are highly surprising,” Steen Bocian, an economist at Danske Bank A/S in Copenhagen, 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.”
Denmark exited a recession in the second quarter of 2009 after exports and increased government spending boosted the smallest of the three Scandinavian economies. 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 growth estimate for both years by 0.2 percentage point citing a recovery in global trade.
The government said that it expects a budget deficit of 4.1 percent this year, up from 2.9 percent in 2010.
Both public and private consumption fell 0.8 percent in the first quarter compared with the previous three-month period, the agency said. Fixed investments declined 8.3 percent.
Denmark’s GDP grew 1.1 percent in the first quarter compared with a year earlier, the agency said.

From: Bloomberg

Denmark to enter recession in 2009

The Danish government slashed its growth forecasts for 2008 and 2009, predicting that the economy would contract by 0.2 per cent in 2009 after growing 0.2 per cent this year.

“Financial turbulence and the weak international growth outlook will along with the wavering housing market and weakening competitiveness lead to weak GDP (gross domestic product) growth in coming years,” the Finance Ministry said in a statement.

Denmark’s economy is not expected to grow before 2010, when its GDP should rise by 0.7 per cent.The government also said it now expected Danish unemployment to double from this year’s 1.7 per cent to 3.5 per cent in 2010. The Danish economy can not avoid being affected by the global financial crisis and the poor outlook abroad.

Source: Invest in India

No quick solution to financial crisis

Denmark may be a small, out-of-the-way European nation, but as the first country to guarantee the deposits and liabilities of all its banks, its experience is sobering. The unwinding of the current financial crisis, Danes have found, will not come quickly or easily.

Closely integrated into the global financial system, Denmark has discovered that ice-cold credit markets cannot warm up without easing elsewhere, too. And the same may prove true not just of smaller countries, but even some of the largest as well, like the United States, Japan and Britain.

"This is a global phenomenon," said Tonny Andersen, the chief financial officer of Danske Bank in Copenhagen. "The unfreezing will be challenging."

A sometimes skeptical member of the European Union that has so far refused to abandon its krone for the euro, Denmark is finding out what going it alone really means. Being a well-governed nation with a gilt-edged credit rating, however impressive in normal times, is not enough when global markets falter.

On Monday, the National Bank of Denmark and the European Central Bank cemented the latest in a string of global currency swap agreements, emergency measures aimed at replacing a currency market that no longer functions. The ECB in Frankfurt will provide Denmark with €12 billion, or $15 billion, "as long as needed," the two central banks said in a statement.

Denmark already has a swap line worth $15 billion with the U.S. Federal Reserve.

The Danish experience has underscored what American and European governments achieved with monumental bailout packages for banks - and what they did not.

Standard & Poor's, the ratings agency, said in a report after the bailouts were passed that the disintegration of the financial system had been avoided. Economies would not go off a "credit cliff," but neither would bank lending resume quickly.

"All these actions should restart the market," said Scott Bugie, managing director for financial services at Standard & Poor's. But, the report added, "it will take time to sink in."

Read the full article at International Herald Tribune

Danish recession warns of tough times

It is hard not to notice the many cars with Swedish number plates driving around Copenhagen.

The Danish capital is connected to Malmo, the Swedish port, by a 16 kilometre bridge-tunnel link, making it easy for Swedes to commute here for work.

And many do.

Denmark may have registered two consecutive quarters of falling economic output - technically putting the country in recession - but there is no shortage of jobs.

"The Dane on the street does not feel this recession severely yet due to the fact that we have a very tight labour market and unemployment is still at a 30-year low," says Jes Asmussen, chief economist at Handelsbanken Capital Markets in Copenhagen.

Costly food

But Mr Asmussen believes Danes are going to feel this recession bite a lot more in the coming year.

The country's low unemployment rate of just 1.8% - compared with a eurozone average of 7.2% - is both a blessing and a curse.

Labour shortages mean firms have long struggled to find personnel. Consequently, labour productivity fell during the last three months of 2007, contributing to a revised 0.2% decline in economic output in that quarter.

Moreover, employers are having to compete on wages to attract good candidates.

Higher wages have added to inflation and pushed up interest rates at a time when Danes are feeling the pinch of rising world food and petrol prices.

"Groceries, vegetables, meat, everything has gone up," says Isabelle Zumot, who lives her partner Martin Camara and two young daughters in north Copenhagen.

"My friends all talk about how food prices are rising."

Falling property prices

As is the case across Europe, rising food prices are stretching the budgets of many Danish households, and this may explain why the average Dane has started to rein in spending, a factor that contributed to a fall in economic output of 0.6% in the first three months of 2008.

Read more at BBC

Denmark bails out Roskilde Bank

Roskilde Bank, whose shares performed the worst last year among the Nordic region's 86 financial companies, became the first Danish lender to be bailed out by the central bank since the subprime crisis started.

The bank found that write-downs had to be made on a "significantly larger scale'' than it had expected, Roskilde Bank, based in the Danish city of the same name, said.

It will receive "adequate'' liquidity after the central bank discussed the matter with regulators and the Danish government, the central bank said.

Roskilde Bank is now mulling a sale of its assets and would be the second Danish lender to be acquired amid the turmoil on financial markets in the wake of the US subprime crisis.

Sydbank, the third-largest Danish lender, this year acquired BankTrelleborg, which said it had "significant financial problems.''

Roskilde's trouble stems from its real-estate lending, it said.

"The recent turmoil in the global financial markets and, not least, the crisis in the Danish real-estate market have led to a severe development in a number of larger client relationships,'' Roskilde Bank said.

Danish house prices will drop as much as 10% both this year and next because of rising borrowing costs and excess supply, Svenska Handelsbanken's Danish chief economist Jes Asmussen said on July 1.

More on Business Day

Denmark Enters Recession, GDP Shrinks Quarterly 0.6%

Denmark slid into recession in the first quarter, the first European Union economy to contract for two consecutive quarters since the global credit crunch started last year.

The economy shrank 0.6 percent, after contracting a revised 0.2 percent in the fourth quarter, Copenhagen-based Statistics Denmark said in a statement on its web site today. The median estimate of four economists in a Bloomberg survey was for growth of 0.2 percent. The economy contracted an annual 0.7 percent.

Growth is slowing worldwide as the credit squeeze sends borrowing costs higher and curbs investment, while record oil prices and soaring food costs erode consumer spending power. Danish consumer prices are rising at the fastest pace in 18 years while property values fall, undermining household spending that accounts for half the $340 billion economy.

"This confirms the picture of an economy that's coming to an abrupt halt,'' Jes Asmussen, chief economist at Handelsbanken in Copenhagen, said in a note to clients. ``Economic growth this year is fading markedly and will be replaced by an economy that's completely stagnated by next year.''

The contraction was led by a 1.1 percent slump in household spending from the fourth quarter, while fixed investment dropped 0.6 percent, the office said. Government expenditure shrank 1.4 percent. Exports grew 1.1 percent, exceeding import growth of 0.4 percent, the office said.

Unemployment
Exports may come under pressure as a labor shortage pushes up production costs and a global economic slowdown hurts demand. That spells reduced demand for workers in the Nordic economy, according to Asmussen.

"Unemployment will rise faster than the consensus picture currently suggests,'' Asmussen said. "The downside risks for the Danish economy are pronounced.''

Randers, Denmark-based Danish Crown AmbA, Europe's biggest producer of pork, said last month it will cut 900 jobs. Biotechnology company Pharmexa A/S said on June 25 it plans to cut 40 percent of its workforce to save costs.

Retail sales dropped 0.6 percent in May from a month earlier, the statistics office also said today, indicating that consumer spending didn't pick up in the second quarter.

'Bleak'
"It's a bleak growth picture for the Danish economy,'' said Jakob Legaard Jakobsen, an economist at Nykredit Bank A/S in Copenhagen. ``The data are an unpleasant surprise and a clear signal that the economic reality has markedly changed its character compared with earlier years.''

Inflation accelerated to an annual 3.4 percent in May, the office said on June 10. The economy grew 1.8 percent in 2007 and 3.9 percent in 2006. Unemployment dropped to 1.7 percent in May.

The central bank doesn't target price stability as its sole mandate is to keep the krone pegged to the euro in a 2.25 percent band. It last raised the key lending rate on May 16 by 0.1 of a percentage point to 4.35 percent to defend the currency peg.

"The Danish economy has now entered new times,'' said Niels Roenholt, an economist at Jyske Bank A/S in Silkeborg, Denmark. "Today's numbers are without doubt just a foretaste of what's to come.''

Source: Bloomberg