Danish Government Repeats 2013 Domestic Financing Outlook

Denmark’s government cut its growth forecast for this year as the debt crisis in the euro area undermines a recovery in Scandinavia’s weakest economy.

The situation “abroad is placing limits on how fast growth can return” to Denmark, Economy Minister Margrethe Vestager said in a statement. “For better or worse, our fates are intertwined with our trading partners’. But when things start to improve abroad, we’ll be ready.”

Gross domestic product will expand 0.5 percent this year, less than the 0.7 percent predicted in April, the ministry said. It kept its 1.6 percent economic growth forecast for 2014.

Denmark’s AAA rated government bond market emerged as a haven from the euro area’s fiscal crisis last year as the Scandinavian nation keeps public debt at less than half the average in the single currency bloc, relative to GDP. That’s pushed Danish borrowing costs lower and helped stimulate the economy as it struggles to surface from a housing slump. Vestager has rejected calls for more stimulus arguing fiscal restraint is the best way to keep borrowing costs low and support households.

The government cut its estimate for this year’s budget deficit to 1.2 percent of GDP versus 1.7 percent earlier. The shortfall will widen to 1.6 percent in 2014, it said.

The Finance Ministry predicted a domestic financing need for 2013 of 139 billion kroner ($24.1 billion), unchanged from a December estimate, it said yesterday in a separate statement. The government’s total financing need was also maintained at 164 billion kroner. It didn’t publish an estimate for 2014.

Flat Cycle

“The budget will benefit from some extraordinary income from pension taxes this year and in 2014 after the deficit widened from one-off pay-outs last year,” said Steen Bocian, chief economist at Danske Bank A/S in Copenhagen, in a telephone interview. “One-offs will be the only things changing the budget as the structural deficit will be unchanged due to a virtually flat economic cycle.”

The $300 billion economy contracted 0.7 percent in the final quarter of 2012 as housing losses quelled consumer spending and businesses shelved investments.

The Danish central bank uses monetary policy to keep the krone pegged to the euro. It has kept its deposit rate below zero since July to counter a capital influx. The benchmark lending rate is 0.2 percent.

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