Wednesday 14 November 2018

Denmark enters recession

Tasneem Brogger

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, as interest rates rose and inflation accelerated.

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.

Danish consumers have cut back on spending after oil prices in excess of $130 a barrel and soaring food costs sent the inflation rate to an 18-year high. Higher borrowing costs combined with declining property values are also prompting households to refrain from spending.

''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 global economic slowdown will hurt demand for exports while higher credit costs crimp investment, spelling higher unemployment, Asmussen said. The jobless rate fell to 1.7 percent in May, a 35-year low, with labor shortages crimping output in some industries.

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

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.

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.

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. (Bloomberg)

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