Denmark Gives Europe Notice - First EU Country to Admit and slump into a Recession
Copenhagen, Denmark – Europe got a first taste of recession yesterday when Denmark, a country that fronted the housing boom of the past decade, said economic output had shrunk for two quarters in a row.
In the euro area, nerves frayed ahead of a forecasted interest rate increase by the European Central Bank when French President Nicolas Sarkozy said such a move could hit growth and do nothing to lower a record rate of inflation caused by high oil prices.
In the meantime, a lot of the bad news came from countries in and outside the euro area where the housing market boom was one of the main drivers of the economy in recent years, including Ireland, Spain and Britain, in addition to Denmark.
“Who sinned by housing is punished by housing,” said Gilles Moec, an economist in London for Bank of America.
Gross domestic product in Denmark shrank 0.6 per cent in the first quarter of this year compared with the last quarter of 2007, when GDP contracted 0.2 per cent quarter-on-quarter, according to the national statistics office.
Handelsbanken chief economist Jes Asmussen said his bank was now expecting falls of between 5 and 10 per cent in single-family homes in both 2008 and 2009, partly because rates on the way up, as they appear to be in the euro zone.
The Danish news followed confirmation this week that Ireland and Spain are also on the brink of recession after housing slumps, as well as mounting signs that British house prices are going from boom to bust.
“The news just goes on, getting worse for the U.K. economy,” said Michael Saunders at Citigroup.
The Nationwide Building Society said prices slid 0.9 per cent last month and were down 6.3 per cent on the year, the biggest decline since December, 1992.
As far as euro zone countries are concerned, news of a drop in Germany unemployment was a rare bright spot as Mr. Sarkozy led the charge against the idea of upward moves in ECB rates. “Today’s inflation … is caused by exploding commodity prices so don’t try to tell me rates must rise to fight inflation,” the French leader said when discussing his plans for France’s presidency of European Union affairs.
KIM MCLAUGHLIN AND BRIAN LOVE