Country Report Denmark May 2009

Outlook for 2009-10

• Lars Lokke Rasmussen was chosen as Denmark's new prime minister in early April, after his predecessor was appointed as secretary-general of NATO. The change has no immediate implications for government stability.
• 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) will further 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 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

• Mr Lokke Rasmussen made no major new policy announcements during an inaugural speech before parliament in mid-April.
• Mr Lokke Rasmussen did appear to suggest that he does not feel bound by his predecessor's promise to hold a referendum on adopting the euro before the next election. This stance was at odds with the Conservatives' position.
• Opinion polls suggest that Danish voters have warmed to Mr Lokke Rasmussen, although a honeymoon period for a new leader is not unusual.
• The new prime minister underlined that the economy will benefit from a substantial policy stimulus in 2009-10, and said that the government is prepared to spend more if this is needed to help lift Denmark out of recession.
• Both business and consumer confidence improved noticeably during March and April, although sentiment remains weak.
• Inflation slowed in March. New-car registrations fell by 37.6% year on year in the first quarter. The trade deficit widened at the start of 2009, but the current account was supported by surpluses on the services and income accounts.

This report covers the following industry codes:
SIC Code: 37
NAICS Code: 336