Danish Economy Is Faltering as Growth Risks Persist, IMF Says

Denmark’s recovery is faltering and risks to growth are on the “downside” because of the Nordic nation’s close ties to the euro area, the International Monetary Fund said.

The Danish economy will grow 0.9 percent in 2013, short of the government’s own 1.2 percentage estimate, the Washington-based IMF said in a Dec. 20 report published today, following an annual review in November. Denmark’s economy probably contracted 0.4 percent in 2012, the IMF said.

The Danish economy 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.

A “further slowdown or renewed recession in major trade partners, especially in the euro area, could weigh heavily on Danish exports,” the IMF said. “Renewed financial turmoil could raise funding costs for banks reliant on wholesale funding; a further decline in housing prices could put pressure on banks and households and depress still-weak private consumption.”

Denmark is working on a plan to aid its businesses without putting pressure on a public budget that’s already stretched to its limits, Economy Minister Margrethe Vestager said last week.

The IMF urged the government to “prepare contingency plans to support the economy” if growth weakened further or corporate and municipal investments slid. Denmark is well-positioned to address policy issues given its AAA credit rating and public debt of about 50 percent of gross domestic product, the IMF said.

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