Danish Central Bank Sees Slower Growth as Housing Slump Extends

Denmark’s central bank cut its economic growth forecast for this year as the Nordic nation struggles to withstand a recession in Europe and extricate itself from a burst property bubble in 2008.

Gross domestic product will grow 0.8 percent in 2013, the Copenhagen-based bank said today, lowering a 1.3 percent December forecast. The expansion will be 1.7 percent in 2014, compared with a 1.8 percent prior estimate, the bank predicted.

The government also yesterday lowered its forecast after the economy contracted 0.9 percent in the fourth quarter. The Danish economy shrank 0.6 percent last year for the worst economic contraction since the peak of the global financial crisis in 2009. The country is struggling to emerge from a burst housing bubble in 2008 that’s depressed consumer spending and caused at least a dozen bank failures.

“Denmark will have higher growth than the euro zone and it appears that will be the case into 2015,” Central bank Governor Lars Rohde told a press conference in Copenhagen. “Consumption has been held up and there’s quite a big potential for the economy to be released when confidence returns. For consumers that will largely be related to the property market.”

The $312 billion economy will be helped this year by a 0.7 percent gain in consumer spending and 1 percent rise in public spending, the central bank forecast. Housing investments will slide 0.6 percent, compared with a December estimate for a 1.7 percent gain.

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.

Denmark has a fixed exchange rate policy and pegs its krone to the euro. The central bank uses policy to target a krone rate of 7.46038 against the common currency. The bank in January raised its lending rate to 0.3 percent from 0.2 percent. It also increased its deposit rate to minus 0.1 percent from minus 0.2 percent.

To contact the reporter on this story: Peter Levring in Copenhagen at plevring1@bloomberg.net

To contact the editor responsible for this story: Jonas Bergman at jbergman@bloomberg.net

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