Housing Rebound Underpins Danish Recovery Bet: Vestager

A rebound in Denmark’s housing market shows the recovery the government has been waiting for is now underway, Economy Minister Margrethe Vestager said.

Apartment prices rose 2.5 percent in May from April, and 12.4 percent from a year earlier, Statistics Denmark said on July 31. House prices rose 0.5 percent in May from the month earlier, and 3.9 percent from a year earlier.

“There was evidence of a recovery in the housing market in 2012 and prices have risen slightly in 2013,” Vestager said in an e-mailed reply to questions. “Even though activity in the housing market continues to be low, the gains, along with other indicators, support our cautious optimism on the Danish economy.”

The government, which is due to publish its preliminary budget proposal later this month, in May cut its economic forecast for the year to 0.5 percent growth from the 0.7 percent seen in April. It kept its 1.6 percent growth estimate for 2014.

“I’m seeing the economy in the same way as when we set out our course earlier this year,” Vestager said. “Denmark is heading in the direction we forecast.”

Denmark’s $355 billion economy has struggled to surface from a burst housing bubble that drove property prices down 20 percent from a 2007 peak and wiped out more than a dozen community banks. Gross domestic product contacted 0.5 percent last year and stagnated in the first quarter, the statistics office estimates.

Stimulus Calls

The government-backed Economic Council has urged the Social Democrat-led coalition of Prime Minister Helle Thorning-Schmidt to add stimulus to revive consumer demand and help create jobs.

Vestager said this month’s budget proposal won’t include additional stimulus measures, arguing the structural flaws holding back the economy won’t be fixed through short-term support.

According to some economists, recent housing data now suggest signs of overheating. The 12.4 percent annual gain in apartment prices “can’t be justified on the back of the economic development,” Steen Bocian, chief economist at Danske Bank A/S, said July 31. “At this point, we’re not looking at a bubble, but if the development continues, there’s a considerable risk.”

CDS Drop

Five-Year credit-default swaps on Danish government debt declined as much as 15 percent today to their the lowest level since September 2008, based on closing prices compiled by Bloomberg. The swaps traded 3.7 basis points lower at 22.8 basis points at 10:53 a.m. in Copenhagen, about four basis points below similar contracts on Germany.

Danes have taken advantage of record-low interest rates driven down by AAA rated Denmark’s status as a haven from Europe’s debt crisis. While private debt is 310 percent of disposable incomes, according to the Organization for Economic Cooperation and Development, government debt is less than half the euro-area average. The central bank’s deposit rate has been below zero since July 2012.

“None of us knows if house prices adjusted enough or if the property market will need to take another downturn,” Bocian said.

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