* 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
By Mette Fraende and Erik Matzen
COPENHAGEN, Dec 13 Denmark's fledgling economic
recovery has come to a halt and weak confidence, sluggish
exports and low government spending will keep growth anaemic in
2013, the central bank and the government predicted on Thursday.
The triple A-rated economy will shrink by 0.4 this year
after narrowly escaping recession in the third quarter and
growth will barely rise above 1 percent next year, both
institutions said in regular reviews on Thursday.
Euro zone outsider Denmark has outperformed its European
Union peers in recent years but has fared worse than Nordic
neighbours Sweden and Norway as a collapsing housing market cut
deep into consumption, reduced confidence and put the banking
sector under pressure.
"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."
And some predicted that the new forecasts may still be too
optimistic as the economy's main growth drivers have lost steam
and key trading partners around Europe are themselves struggling
with shrinking growth.
"We have probably not seen the last downwards adjustment
from the government and the central bank," Nykredit senior
economist Tore Stramer said.
"In a world with negative growth rates in the fourth quarter
and a string of weak domestic activity data, it is difficult to
see positive growth of 0.4 percent in the fourth quarter,"
Stramer said, referring to growth needed in the last three
months to achieve the new forecast.
Private consumption, one of the economy's main drivers, has
been anaemic despite record-low interest rates as a burst
property bubble left many households indebted and wary of
Exports have also faltered while the government, which has
boosted spending in recent year to kick start the economy, is
now reigning in expenditure.
"Both the central bank and the government are fundamentally
more optimistic than we are. I hope they are right, but I doubt
it," Handelsbanken chief economist Jes Asmussen said.
"We will need to see a significant change in the fourth
quarter to end up with a 0.4 percent contraction in 2012,"
Still, in a glimmer of hope, the bank said house prices are
beginning to rise and could increase 2 percent next year after
cumulative falls of around 25 percent over the past five years
and this should support consumption next year.
Indeed, household consumption will rise by 1.2 percent next
year and residential investment, which fell over 9 percent this
year, will turn positive in 2013, the bank predicted.
Export growth should also pick up from this year's 1.9
percent to 2.9 percent in the year ahead.
"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 budget deficit, although shrinking, could also give the
economy a bit of extra boost as the government sees next year's
deficit at 2.5 percent of GDP, above a previous 1.9 percent