Economy inches out of recession

Despite growth in the first quarter, the downgrading of Danish banks and the euro’s woes still threaten the economy

June 2nd, 2012 9:21 am| by admin
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After a decline in the two previous quarters, Denmark's GDP grew by 0.3 percent in the first quarter 2011, according to figures from Danmarks Statistik, possibly heralding a turning point for an economy that had slipped into recession.

The growth comes after economic output fell 0.3 percent in the last half of 2011, and was driven by increased public and privat sector spending as well as higher rates of investment.

Exports also nudged up 0.3 percent, but those gains were outstripped by a 2 percent increase in imports. Unemployment, meanwhile, rose 0.3 percent in the first quarter.

While the growth provides a ray of optimism, economists point out that in the first quarter of 2011 the economy grew by 0.4 percent, before tailing off and ending the year in recession. Tore Stramer, a senior economist with Nykredit bank, warned that the first quarter's growth figure is fragile at best, especially due to Europe's persistent economic troubles.

“GDP growth of 0.3 percent is very acceptable at time when European growth is being stifled by the escalating debt crisis,” Stramer told financial daily Børsen. “But, the debt crisis can increase consumer and corporate insecurity, which can curtail spending and investment, something the growth in the Danish economy certainly cannot support.”

The quarterly result is positive, some say, because it comes at a time when the economy was predicted to continue its downward trajectory. 

“The figures come as a surprise because we had feared that figures in key areas would push the recession into the first quarter of 2012 as well,” Jens Nærvig Pedersen, a Danske Bank economist, told Politiken newspaper.

Banks were in particular in need of some good news after being downgraded by two major rating agencies on Wednesday.

Moody’s followed the lead of Standard & Poor's and downgraded nine Danish banks, including Danske Bank, the country's largest financial institution.

In its assessment, Moody's said the country's banks face a difficult operating environment, weakening asset quality and low profitability due to sluggish domestic economic growth, weakening real estate prices and higher levels of unemployment, as well as the risk of external shocks from the on-going eurozone debt crisis.

But despite the ill tidings, Michael Stæhr, a economist with Sydbank, predicted that the news that Denmark had eased out of a recession, albeit barely, was would reassure consumers, many of whom will be receiving money after the cancellation of a state-run early retirement investment programme.

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