DANES face a new reality as the Nordic country needs to provide more welfare services at a lower cost and stop a slide in its competitiveness amid a struggle to end a four-year economic crisis, Prime Minister Helle Thorning-Schmidt said.
The country will have to prepare for a "long, enduring stretch", the premier warned in a traditional televised new year's speech from Copenhagen.
Denmark can emerge from the crisis if we "understand that we are in a new reality", she said. "The abundance of the last decade will not return."
Denmark is struggling to recover from a property slump that has pushed at least a dozen banks into insolvency since 2008.
The International Monetary Fund has urged the government to consider direct stimulus measures to avoid a recession as house prices continue to sink. Property values have lost more than 20pc since their 2007 peak and will probably drop 4.7pc this year, the government-backed Economic Council said a few weeks ago.
The economic plight is destroying jobs and unemployment will continue to rise until 2014, council estimates.
The jobless rate, including people in vocational training programmes, was at 6.3pc in October, up from below 3pc in 2008.
The government said last month that the economy probably shrank 0.4pc in 2012, matching the decline in the euro area. Economic output will expand 1.2pc this year, the government said.
The premier said in the speech that while 2012 was a tough year, a "slow turnaround" is expected this year even as the government will have to think hard about new spending.
The country will need to target exports markets in Asia, keep wage growth in check and improve education, she said, urging students to complete their degrees quicker. (Bloomberg)