Country Report Denmark June 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 a 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

• Recent opinion polls suggest that the new prime minister, Lars Lokke Rasmussen, has enjoyed more favourable personal ratings since his appointment in early April, but the opposition parties have a majority.
• The question of possible future Turkish membership of the EU has dominated campaigning ahead of the European elections.
• Following an additional interest rate cut in early May, the differential between official Danish and euro area lending rates has narrowed to 65 basis points, compared with 100 basis points at the height of the financial crisis in 2008.
• Given the risk of currency volatility, the Nationalbank has been accumulating substantial foreign-exchange reserves this year.
• The government's revised budget outlook projects a general government deficit of 1.3% of GDP for 2009 and of 3.3% of GDP for 2010, larger than expected in the initial 2009 budget that was passed in December.
• Retail sales volumes contracted in the first quarter of 2009, but the pace of the decline is easing. Households' assessments of their own financial situation over the next 12 months continue to improve.
• Manufacturing output fell by 9.4% quarter on quarter in the first quarter. The unemployment rate rose from 1.7% in September 2008 to 3.3% by April 2009.

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