Country Report Denmark July 2009

Outlook for 2009-10

• The minority Liberal-Conservative government is expected to retain sufficient parliamentary support to remain in office in 2009-10, but a more united opposition will mount a strong challenge at the next election (due by 2011).
• The government's main short-term policy priorities will be to ensure the stability of Denmark's financial institutions and to alleviate the effects of the sharp economic downturn, through tax cuts and higher public spending.
• The government is unlikely to fulfil a pledge made after the last election to hold a referendum on whether to join the euro area during the current parliamentary term (2007-11), given uncertainty over the result.
• Fiscal policy will be expansionary. Following a cut in personal income taxes at the beginning of 2009, a further reduction will be implemented in 2010. Public investment is set to rise. The budget balance will swing into deficit.
• The Nationalbank (the central bank) may make a small, additional reduction in interest rates during 2009, although it will maintain a positive differential with comparable euro area rates if this is necessary to shore up the krone.
• The Danish economy is heading for a severe contraction. Real GDP is forecast to shrink by 3.5% in 2009, with growth stagnant in 2010.

Monthly review

• The Danish elections to the European Parliament in early June resulted in strong gains for the left-wing Socialist People's Party and the right-wing, populist Danish People's Party.
• The Social Democrats emerged as the main loser from the elections, but retain the largest number of Danish members of the European Parliament (MEPs) and the results should not damage the standing of the current leadership.
• The government has reached 2010 budget agreements with representatives of local and regional governments. Although current spending will be tightly controlled, capital spending will continue to grow.
• The Nationalbank further narrowed interest rate differentials between Denmark and the euro area in early June.
• As of mid-June the government had issued Dkr24bn (US$4.4bn) of bonds in 2009, against a revised central government borrowing target of Dkr82bn.
• The Nationalbank has carried out stress tests for Danish banks. Losses are predicted to remain manageable in the most likely scenarios facing the Danish economy, but a more negative outcome is possible.
• Real GDP declined for the fifth consecutive quarter at the start of 2009, falling by a seasonally adjusted 1.1% quarter on quarter and by 4.3% year on year.

This report covers the following industry codes:
SIC Code: 39
NAICS Code: 31