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The Nyhavn canal in Copenhagen Harbour.


A dose of schadenfreude (delight in the misfortune of others) may have brightened the mood in Portugal this week.

Denmark, which is not in the euro zone, posted an unexpected 0.5 per cent drop in first-quarter gross domestic product and so joined its southern friend as the only European countries in recession. But investors in Danish assets should not equate the country's problems with Portugal's.

First, Denmark's triple A rating is solid. The Portuguese state is more than twice as indebted and its credit rating is four notches lower. Next, flexible labour laws in Denmark put it ninth in the world in terms of competitiveness, according to the World Economic Forum. Thanks to an overly restrictive labour market, Portugal ranks 46th - behind both Tunisia and Bahrain. Little wonder that Portugal's 12.6 per cent unemployment rate is about one-third higher than that of Denmark.

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Denmark still has its problems. Household debt of 300 per cent of income - among the highest rates in the developed world - has started to bite. And while Danes tend to be asset-rich, their assets are mostly illiquid, notes Exane BNP Paribas.

As a result of this excess of leverage, there are now more houses on the market than during the depth of the financial downturn - three times as many as in Sweden, even though Denmark has only half the population. But while loans are expanding at about 6 per cent in Sweden, they are all but stagnant in Denmark, making it difficult to absorb the property glut. Further price falls look certain. Denmark will not need a Portuguese-style bail-out anytime soon. But investors should consider the knock-on effects of its property market which has not yet reached its nadir.

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