Denmark's Economy Expands 0.6%, Ending Recession

By Christian Wienberg

Sept. 1 (Bloomberg) -- Denmark's economy expanded in the second quarter as a pick up in household spending ended the first recession within the European Union since the credit crunch started last year.

The economy grew 0.6 percent, after contracting a revised 0.8 percent in the first quarter, Copenhagen-based Statistics Denmark said on its Web site today. Growth was in line with the median estimate of six economists surveyed by Bloomberg. Annual growth was 1.2 percent, compared with a 0.7 percent contraction in the first quarter.

Household spending, which accounts for half of Denmark's $340 billion economy, picked up in the second quarter as the lowest level of unemployment in 35 years helped push wage growth to the fastest pace in seven years. That compensated for higher borrowing costs, a decline in property values and accelerating inflation.

``The labor market is the only bright spot in the Danish economy,'' Niels Roenholt, an economist with Silkeborg, Denmark- based Jyske Bank A/S, said today in an e-mail. ``Today's numbers are somewhat encouraging compared with the previous data, but there can be no doubt that 2008 will be a year of limited economic growth.''

The unemployment rate held at 1.6 percent in July, the lowest since 1973, the statistics agency said last week. Wage growth accelerated to an annual 4.9 percent in the second quarter, the most since 2001, according to the Confederation of Danish Employers.

Household Spending

Household spending grew 0.3 percent in the second quarter from the previous three months, the agency said, after contracting 1.1 percent in the first quarter.

``Private consumption returned to the positive, but isn't growing at a very impressive speed,'' Jes Asmussen, an economist with Handelsbanken in Copenhagen, said in a note.

With Denmark emerging from recession, Estonia is now the only EU country with two consecutive quarters of economic contraction.

Denmark's government last week cut its forecast for expansion this year to 1.1 percent from 1.2 percent and to 0.5 percent from 0.7 percent for 2009. The economy grew 1.7 percent in 2007.

House prices will drop as much as 10 percent this year and next as rising interest rates undermine demand, Svenska Handelsbanken AB, Denmark's second-largest bank by market value, estimates. Homeowner foreclosures rose in July to the highest since 2003, Statistics Denmark said.

The central bank took over regional lender Roskilde Bank A/S on Aug. 24 after it failed to meet solvency requirements following writedowns on bad loans from the slowing real estate market. It was the first time in 15 years the bank had bailed out a financial company.

The inflation rate reached an 18 1/2-year high of 4 percent in July, according to Statistics Denmark.

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.

To contact the reporter on this story: Christian Wienberg in Copenhagen at cwienberg@bloomberg.net