Denmark: the latest victim of falling house prices
According to the Wall Street Journal, Denmark has slipped into recession because of falling house prices. Denmark saw a fairly head rise in house prices during the bubble (58% appreciation from 1997-2005). Since that time, house prices have gone bust.
European recession fears grew Tuesday as Denmark became the first European Union country to slip into a technical recession and a raft of weak data indicated others could soon follow.
In the eurozone, Ireland and Spain are dealing with major housing downturns. Germany, having recovered from its own housing bust after reunification, has also shown economic weakness despite no growth in housing prices this past decade. Stocks in Europe fell on the news about Denmark and poor manufacturing data.
European stocks fell sharply as traders worried about the region’s growth outlook. Economists believe Italy, Spain, Portugal and Ireland to be at most risk of following Denmark into recession. The U.K. and France face, at best, near stagnation.
Denmark is part of a growing list of European countries experiencing a slowdown. In all likelihood, at least three or four economies in Europe were in recession as of the end of Q2. Data will be released soon. Ireland and Spain have already seen one quarter of contraction. In all likelihood, another is on the way as a housing bust takes its toll. Portugal and Italy are two other eurozone economies likely to have contracted in Q2.
A housing slump also contributed to Denmark’s slide into two-consecutive quarters of contraction from the previous quarter, a widely accepted definition of a technical recession.
Danish first-quarter gross domestic product fell a seasonally adjusted 0.6% on a quarterly basis after the economy in the fourth quarter contracted 0.2%, data from Denmark’s national statistics agency showed.
The Irish and Portuguese economies both contracted in the first quarter and are threatened with another in the second quarter. Italy narrowly averted a second consecutive GDP contraction in the first quarter, but faces another test in the second quarter. Spain, while still in positive territory, also is seen at risk as business activity plummets.
The PMI surveys showed Italian manufacturing activity in June recorded a sharper than expected drop to 46.9 from 48.0, the lowest level since December 2001 and below market forecasts of 47.5.
In Spain, manufacturing activity as graded by purchasing managers sank to its lowest level since records began in 1998, falling to 40.6 in June from 43.8 a month earlier.