Aug. 22 (Bloomberg) -- Denmark’s government said it won’t deviate from debt issuance targets set in past years even as it steps up infrastructure spending.
Less than a week before Denmark’s Social Democrat-led government unveils its 2014 budget proposal, Finance Minister Bjarne Corydon said the AAA rated nation’s supply of bonds is unlikely to change.
“We’re trying to plan funding for public projects as rationally as possible,” Corydon said yesterday in an interview. “But you shouldn’t expect any major new policy changes on government bond issuance.”
The government of Prime Minister Helle Thorning-Schmidt in May said it plans 139 billion kroner ($25 billion) this year in krone-denominated borrowing, with a total requirement of 164 billion kroner. Since then, the yield on Denmark’s benchmark 10-year debt has risen to 2.09 percent from as low as 1.49 percent in May as a recovery in the euro zone weakens demand for haven assets.
Corydon’s comments follow assurances from Economy Minister Margrethe Vestager last week that Denmark won’t unveil further stimulus packages as the government focuses on keeping its deficit within the European Union’s 3 percent limit of gross domestic product.
Denmark’s $355 billion economy stagnated in the first quarter after shrinking 0.5 percent in 2012. The nation has fallen behind neighboring Norway and Sweden, where smaller debt burdens and faster growth rates have underpinned demand. Danes, the world’s most indebted people, have hesitated to spend after house prices plunged about 20 percent since their 2007 peak.
The government on May 27 cut its growth forecast for this year to 0.5 percent from the 0.7 percent predicted in April. It kept its 1.6 percent growth estimate for 2014. The government is due to publish revised forecasts on Aug. 27.
Both Vestager and Corydon have argued that Denmark’s restrained economic policies have supported record low interest rates. The central bank’s efforts to defend the krone’s peg to the euro have left its deposit rate below zero since July last year.
The monetary stimulus has so far failed to create jobs. Danish unemployment, including people in vocational training programs, was 5.8 percent in June, compared with as low as 2.5 in 2008.
“You can’t find a quick-fix for a crisis,” Corydon said. “You need to work on both long- and short-term issues. We need to work on structural issues and competitiveness.”
Thorning-Schmidt pledged in February to lift annual economic growth to 2 percent on average from 2014 through 2020, and unveiled plans to create 150,000 private jobs by 2020 through increased public spending and corporate tax cuts. The measures will cost the state 75 billion kroner ($13 billion).
“It’s about following the rules we’ve passed ourselves to ensure that the economy is ok,” Corydon said.
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