Denmark Seen Cutting Growth Outlook as Russia Dispute Weighs

Denmark will probably cut its growth forecasts when it presents its budget outlook tomorrow as sanctions on Russia hurt companies such as brewer Carlsberg A/S, economists said.

Economists at Danske Bank A/S and Svenska Handelsbanken AB foresee that the government may lower its growth forecast for this year by 0.1-0.2 percentage point from the 1.4 percent predicted in May. The Social Democratic-led coalition, which faces an election by September 2015, will present new forecasts with a 2015 budget draft.

The development in Russia has already prompted Carlsberg and cleaning services company ISS A/S to cut profit forecasts. Scandinavia’s weakest economy has raised spending to the limit to emerge from a slump triggered by a 2007-2008 property crash.

“The spill-over from the Ukraine conflict is zapping confidence among Denmark’s trading partners,” said Jes Asmussen, chief economist at Handelsbanken. “With all the downgrading going on around Europe, it would almost certainly be appropriate for Denmark to downgrade as well.”

Growth in the euro region stalled in the second quarter as its three-largest economies weakened, led by a contraction in Germany. Denmark’s neighbor Sweden lowered its growth outlook over the weekend, and now sees an expansion of 1.9 percent this year, versus 2.5 percent earlier,

Carlsberg, the world’s fourth-largest brewer, on Aug. 20 cut its full-year profit forecast as Russian consumers spent less in the wake of sanctions. ISS, the world’s biggest private employer, cut growth expectations on Aug. 21 after European clients held back on contracts.

Conflict Resolution

“The impact could be very temporary if the conflict is resolved or companies become convinced it won’t escalate further,” Jacob Graven, chief economist at Sydbank said by phone. “Still, it’s very hard to see a resolution to the conflict.”

Peace plans are “on the table” for tomorrow’s talks between Russian President Vladimir Putin and his Ukrainian counterpart, Petro Poroshenko, German Chancellor Angela Merkel said Aug. 23 during her first visit to Kiev since separatist violence erupted this year.

As recently as June, Finance Minister Bjarne Corydon said Denmark could now start scaling back stimulus as a recovery was taking hold. Economy Minister Margrethe Vestager said on Aug. 12 there remained a “few dark clouds” that require monitoring.

“The second quarter was characterized by European growth slowing down,” Steen Bocian, chief economist at Danske Bank A/S, said in a note.

The economy expanded 0.8 percent in the first three months of the year, the most since the third quarter of 2010. Danish unemployment has dropped to 4 percent. Consumer confidence rose to its highest since January 2007.

Those developments may have ended last quarter. Handelsbanken estimates the economy shrank 0.25 percent in the three months through June after consumer spending dropped and exports suffered, according Asmussen.

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