French dairy giant Danone has been forced to issue a profit warning after falling victim to the economic crisis in Europe.

The company said it would respond to faltering demand in markets such as Spain with a programme of price cuts.

“Since the end of the first quarter, the group has faced a swift deterioration in consumption in southern Europe that has proven steeper than anticipated, especially in Spain,” Danone told investors today.

“In these markets, Danone has chosen to respond with a combination of support for its brands and steps to make its products more competitive.”

Danone said the cost of raw materials had also risen more sharply than previously anticipated. While sales targets were unchanged, margins would therefore take a hit in the coming months.