Country Report Denmark December 2008

Outlook for 2009-10

• The minority Liberal-Conservative government's main short-term policy priority will be to ensure the stability of Denmark's financial institutions.
• Despite a downturn in the economy, the coalition will seek to maintain momentum behind its programme of welfare reforms, but it will have to scale back its ambitions to secure a parliamentary majority.
• The government has again raised the possibility of holding a referendum on whether to join the euro area. A vote in 2009 still seems unlikely given the absence of a broad political consensus in favour of a "yes" vote.
• Fiscal policy will be mildly expansionary. Spending on public services is set to rise. Income tax for low- and middle-income earners will be cut in 2008-09. The government will seek to reduce the top rate of income tax in 2010.
• The Nationalbank (the central bank) will reduce interest rates during 2009, although it will maintain a positive differential with comparable euro area rates if this is necessary to protect the krone's peg to the euro.
• The Economist Intelligence Unit has downgraded its forecasts for the Danish economy. We now expect real GDP to contract by 1.6% in 2009, with growth stagnant in 2010.

Monthly review

• A recent opinion poll suggests that the Danish public is becoming more favourable to the idea of adopting the euro, although there remains a large number of undecided voters.
• Voters in Greenland backed a move towards greater autonomy from Denmark in a referendum on November 25th.
• The prime minister, Anders Fogh Rasmussen, has said that higher environmental taxes could finance a cut in income tax from 2010. A new report from the Danish Economic Council examines options for tax reform.
• The government has announced that it will pursue a slightly more expansionary fiscal policy in 2009. As a result of the economic slowdown, the government now expects the budget surplus to swing into deficit.
• Real GDP growth contracted by 0.5% quarter on quarter during the third quarterthe third quarter of negative growth recorded during the past year.
• Retail sales volumes contracted by 5.5% year on year in October. Confidence in Danish industry and the construction sector has deteriorated sharply.
• The unemployment rate rose from 1.6% in September to 1.7% in October, suggesting that a turning-point in the labour market may have been reached.

Source: Country Report

This report covers the following industry codes:
SIC Code: 49;65;70
NAICS Code: 22;53;72