Denmark can't avoid third recession in four years
Denmark's government says it has exhausted all avenues for adding stimulus as the economy shows signs of sinking into its third recession since the global financial crisis started.
"We've used whatever leeway there is," Economy Minister Margrethe Vestager said in a telephone interview from Copenhagen. "There's no more space to stimulate the Danish economy."
Denmark's $300bn (€229bn) economy probably contracted last quarter, after shrinking 0.7pc in the previous quarter, according to Danske Bank and Svenska Handelsbanken.
That would mark the nation's third recession in less than four years, singling Denmark out as the Scandinavian nation hardest hit by the global financial crisis.
The country has yet to surface from the fallout of a burst housing bubble that's sent property prices plunging more than 20pc since 2007.
The average sales price for a single-family home fell 5.9pc in January from a month earlier, the statistics office said earlier this month.
The government of Prime Minister Helle Thorning-Schmidt won lawmaker backing last week for a 75 billion-krone (€10.06bn) package of support measures including corporate tax cuts and tax breaks on home refurbishment.
The measures are too small to jolt Denmark out of its economic plight, according to Danske Bank, the nation's largest lender. The government has argued that dedicating more public funds to stimulus would jeopardise its stable AAA rating.
The Economy Ministry said that gross domestic product will grow 0.7pc this year, an estimate that paints "a far-too rosy picture of Denmark's economic prospects," according to Jes Asmussen, chief economist at Handelsbanken in Copenhagen.
Denmark's central bank uses monetary policy to defend the krone's peg to the euro.
A public debt load that's less than half the eurozone's average has helped Denmark maintain its top rating throughout the crisis, spurring a capital influx and forcing the central bank to cut rates to defend the currency peg.
The benchmark lending rate is 0.3pc while the deposit rate is minus 0.1pc.
Denmark pays 14 basis points more than Germany to borrow over 10 years.
"With the uncertainties that persist in Europe it would be unwise to spend more as things can still change for the worse," MS Vestager said.
Her ministry estimates the budget deficit will reach 1.7pc of GDP this year and 1.8pc in 2014.
The figures include an estimated 40 billion kroner in proceeds from capital pension taxes. Excluding that windfall, Denmark may approach the European Union's 3pc limit, she said.
While low interest rates have helped keep most Danes in their homes even after property values plunged, the lingering effects of the nation's housing crisis continue to blunt demand.
"It's weighing significantly on private consumption," said Steen Bocian, chief economist at Danske.
"The property market won't improve enough to have a positive impact on private consumption in the economy this year."