Denmark Cuts Economic Outlook as Vestager Defends Stimulus Plan

Denmark cut its growth forecast for this year after fourth-quarter figures revealed a deepening economic slump that the government says calls for more stimulus.

Gross domestic product will expand by 0.5 percent to 1 percent this year, the Economy Ministry said yesterday. That compares with a December forecast of 1.2 percent growth. The economy contracted 0.6 percent last year, its deepest decline since the height of the financial crisis in 2009, the statistics office said Feb. 28.

“These numbers confirm why we think it’s necessary to launch another growth plan,” Economy Minister Margrethe Vestager said in a phone interview from Copenhagen late yesterday. “We have to do something to trigger an effect from the traditional stimulus we already put in place.”

Five years into the global financial crisis, the Social Democrat-led government has turned to corporate tax cuts to support the economy. The move, which was announced last month, follows income tax breaks and government payouts of more than 27 billion kroner ($4.7 billion) that had failed to spur consumer demand.

“There’s more growth potential to come from pension scheme payouts and tax breaks,” Vestager said. “We couldn’t just sit around and wait for it to arrive.”

Prime Minister Helle Thorning-Schmidt said this month she aims to cut business costs and align corporate tax rate with levels in Germany and Sweden to aid competitiveness. Unemployment in Denmark has more than tripled since 2008, with one third of industrial jobs disappearing amid faltering demand in Europe.

Horrible Year

The Danish economy contracted 0.9 percent in the fourth quarter from the previous three months as consumers spent less and business investment stalled. The decline was three times as deep as estimated in a Bloomberg survey of economists, prompting Jacob Graven, chief economist at Sydbank A/S (SYDB), to call 2012 the nation’s “annus horribilis.”

“Given the low figures from the last quarter, it will be very difficult to reach growth of above 1 percent,” Tore Stramer, a senior analyst at Nykredit A/S, said by phone. GDP probably won’t expand by more than 0.4 percent and the risk of a recession remains as Europe’s debt crisis persists, he said.

Denmark is struggling to emerge from a burst property bubble in 2008 that triggered a local banking crisis and wiped out more than a dozen lenders. Property values have slumped more than 20 percent since their 2007 peak, sending prices back to 2005 levels, Nordea Bank AB (NDA) estimates.

According to Vestager, the recovery will pick up after 2013 as “positive signs are beginning to show in some of the components of GDP,” she said. “We still see the same growth path with rates increasing from 2013 going forward.”

The government’s latest estimate for 2013 growth is “very uncertain” and will depend on revised fourth-quarter data from the statistics office, due to be released on April 4, the ministry said yesterday.

To contact the reporters on this story: Frances Schwartzkopff in Copenhagen at fschwartzko1@bloomberg.net; Peter Levring in Copenhagen at plevring1@bloomberg.net

To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net

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