Danish Authorities Grow Gloomier as Housing Slump Extends

Danish authorities are becoming gloomier about the Nordic nation’s ability to emerge from a five-year housing slump as consumers withhold spending and Europe’s recession weighs on exports.

The central bank today cut its economic growth forecasts for the next two years, estimating gross domestic product will expand 0.8 percent in 2013 and 1.7 percent in 2014. The government yesterday said growth this year will be 0.5 percent to 1 percent, following a 0.6 percent contraction last year.

The economy last year suffered the worst economic contraction since the peak of the global financial crisis in 2009, dragged down by a recession in the euro area. Denmark, home to A.P. Moeller Maersk A/S, 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 today 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.”

Tax Breaks

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

Five years into the global financial crisis, the Social Democrat-led government has turned to corporate tax cuts to support the economy. The move, 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.

The government lowered its forecast yesterday from a December prediction of 1.2 percent, reacting to a fourth-quarter contraction of 0.9 percent.

“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.”

‘Positive Signs’

Prime Minister Helle Thorning-Schmidt said this month she is seeking 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.

Property values have slumped more than 20 percent since their 2007 peak, sending prices back to 2005 levels, Nordea Bank AB estimates.

The recovery will pick up after 2013 as “positive signs are beginning to show in some of the components of GDP,” Vestager 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.

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.

Before it's here, it's on the Bloomberg Terminal.