Country Report Denmark September 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 further small, additional cuts 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 experiencing one of the most prolonged recessions in Europe. Real GDP is forecast to shrink by 3.5% in 2009, and is expected to be flat overall in 2010.

Monthly review

• Following the end of the holiday season, Danish politicians have presented a number of policy initiatives to set the agenda for the next parliamentary year.
• The Conservatives triggered a vigorous debate on integration following the publication of a new policy paper that, among other measures, called for a ban on the wearing of burqas and similar clothing in public.
• The opposition Social Democrats and Socialist People's Party have agreed a joint tax and welfare policy, proposing higher incomes for the better off and an increase in the rate of corporate tax.
• The government unveiled an expansionary draft 2010 budget on August 25th, promising to increase public spending in a bid to help lift the economy out of the downturn.
• The government's labour market commission presented its final report in late August, but its recommendations for increasing labour supply were dismissed by the minister of finance before the report was even published.
• Recent economic indicators suggest that the downturn may be bottoming out. Retail sales volumes rebounded in July. Industrial production also increased, in keeping with the improvement in confidence in recent months.