Danish economy may be in recession: finance minister

COPENHAGEN Thu Nov 15, 2012 9:34am EST

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COPENHAGEN (Reuters) - Denmark may have slipped into recession in the third quarter and could struggle to meet growth forecasts as the euro zone crisis smothers consumer confidence, Finance Minister Bjarne Corydon said on Thursday.

In an interview with Reuters, Corydon said economic growth this year risked falling short of the government's 0.9 percent forecast, but predicted a rebound in 2013, when he saw expansion of around 1.7 percent.

"Our general view is that 2012 is going to be a disappointing year, mostly just because of developments in Europe ... and sustained uncertainty over the euro zone," he said, in one of his most pessimistic comments on the economy this year.

Official figures show the Danish economy shrank 0.4 percent in the second quarter, less than forecast, but Corydon said there was a risk that data for July-to-September due in December will show a second consecutive contraction in output. That would meet the technical definition of a recession.

"There is a risk of recession, but I wouldn't think you will see a recession as a result (in) total 2012 growth," he added.

Denmark holds a triple-A credit rating but has struggled to recover from its worst economic downturn since World War Two as the euro zone crisis continues to drag on the Nordic region.

Private consumption, one of the economy's main growth drivers, has been anemic despite record-low interest rates, partly as a consequence of a burst property bubble that left many households indebted and wary of spending.

Similar problems are now affecting Sweden, which has been an economic star in the region but now faces a sharp downturn due to the euro zone crisis, with job layoffs hitting their highest since April 2009.

Margrethe Vestager, Denmark's Minister for Economic and Interior Affairs, said in a separate interview with Reuters on Thursday that a recession was not a certainty.

"We are having very mixed input," Vestager said.

"Exports are doing much better than we feared, domestic demand is still somewhat low, the car buyers are picking up, house prices are tending to stabilize.

"Maybe you could say that the jury is still out."

STRUGGLE TO RECOVER

Analysts have said the government's growth figures are unrealistic given Denmark's struggle to recover and the continued reluctance to spend among consumers and businesses.

The central bank cut its GDP forecast for 2012 to 0.3 percent from 1.2 percent in September, predicting only minimal economic growth as domestic demand shrivels and the euro zone crisis weighs on the country's large export sector.

Denmark's independent Economic Council also slashed its growth forecast to 0.2 percent from 1.3 percent this month but raised its 2013 projection to 1.6 percent from 1.2 percent.

"Denmark is very vulnerable to European developments. Consumers are generally very aware of what's going on in Europe and are increasingly skeptical of euro zone participation, (support for) which is at a historic low," Corydon said.

A majority of Danes rejected the euro in a referendum in 2000 after the Danish crown was pegged to the euro upon the creation of the single currency in 1999, and recent polls show around 70 percent still oppose joining the bloc.

Corydon blamed slow progress by euro zone governments on measures to resolve the now three-year-old debt crisis, saying momentum gained during the summer appeared to have tailed off.

"Now we seem to be in a state of limbo in a way, waiting for politicians to make the right decisions in the euro zone and (on) economic regulation," he said. (Editing by Catherine Evans)

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