Copenhagen (AFP) - The Danish economy shrank by 0.3 percent in the second quarter, official data showed on Friday, casting doubt on the government's annual growth forecast as demand from European trading partners declined.
Analysts had expected economic output to grow slightly after consumer confidence this month reached levels not seen since 2007, just before Denmark was hit by a burst housing bubble.
The gross domestic product rose by 0.6 percent in the first quarter of this year but the data in that period was skewed by insurance companies' payouts following two storms.
The second-quarter numbers reflected "a weak development of production within industry, mining and the service economy," Statistics Denmark which published the figures, said.
Exports fell by 1.6 percent, "the sharpest rate of contraction in five years," Capital Economics' European economist Jessica Hinds wrote in a note to investors.
"This suggested that the weak demand from key trading partners in the euro-zone has weighed on exports," she added.
Denmark is a member of the European Union, but not of the eurozone.
Nordea chief economist Helge Pedersen said the Danish government would have to revise its annual growth projection downwards.
"2014 won't be the turning point we had hoped for," he wrote on Twitter.
As recently as Tuesday the government reiterated its economic growth forecast of 1.4 percent this year.
The centre-left coalition presented a budget proposal this week which would raise deficit spending to the maximum permitted under EU rules, based on two percent's growth next year, a prediction seen by many economists as overly optimistic.
Finance minister Bjarne Corydon said a high level of public spending was needed to secure Denmark's tentative recovery even though Friday's numbers were disappointing.
"When there is uncertainty in the world around us we can't allow ourselves to step on the brakes," he told daily Berlingske.
Economic output in Germany, Denmark's biggest trading partner, fell by 0.2 percent in the second quarter, attributed to geopolitical tensions from the crises in Ukraine and the Middle East.
Neighbouring Sweden, another important export market, last week slashed its economic growth forecast for 2014 to 1.9 percent from 2.5 percent.