UPDATE 1-Denmark slashes growth forecast, warns of long recovery

Thu Dec 13, 2012 3:33am EST

* Govt, C.bank both see economy shrinking by 0.4 pct in 2012

* Growth in 2013 will be slower than earlier expected

* Budget deficit seen above forecasts in 2013

COPENHAGEN, Dec 13 (Reuters) - Denmark's government and central bank slashed their economic growth forecasts on Thursday, warning that the road to recovery would be longer and more difficult than previously predicted.

Denmark's triple A-rated economy will contract this year, below earlier expectations for modest growth and only expand slowly in 2013, both institutions said in regular reviews.

Euro zone outsider Denmark has struggled to stay out of recession this year and narrowly escaped again in the third quarter as the economy's main growth drivers lost steam.

"Growth in the Danish economy has declined in 2012 and, by all indications, has practically ground to a halt at the moment," Central Bank Governor Nils Bernstein said. "Danish consumers and firms continue to be hesitant ... (and) export market growth has been decreasing this year."

For 2012, both the centre-left government and the Nationalbank see a contraction of 0.4 percent while for 2013, the government sees growth at 1.2 percent and the bank at 1.3 percent.

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

Faltering exports have also contributed to slower growth, and private consumption has been too weak to take up the slack.

"2012 will neither be the year we thought it would be, or hoped for, it has unfortunately turned out to take longer for the Danish economy to recover," Economics and Interior minister Margrethe Vestager said.

The government also forecast a bigger budget deficit for next year, revising its estimated to 2.5 percent of GDP from 1.9 percent.

For this year though, it lowered the deficit estimate to 3.9 percent of GDP from 4.0 percent seen in August.