August 25, 2014 / 6:47 PM / 3 years ago

UPDATE 2-Denmark trims 2014 deficit estimate, keeps growth forecasts

* Sees 2015 budget deficit at EU ceiling of 3 pct

* Little room for manoeuvre after exiting EU deficit scheme

* Maintains growth forecast despite euro zone stalling (Adds analyst, minister statement, details of GDP, regional comparisons)

By Erik Matzen

COPENHAGEN, Aug 25 (Reuters) - Denmark has trimmed its 2014 budget deficit estimate and maintained its forecast for 2015, when its domestic financing needs will grow by almost 50 percent, according to a 2015 government budget proposal and a Finance Ministry statement.

The proposal, seen by Reuters on Monday and due to be made public on Tuesday, maintained the forecast for gross domestic product growth despite a stalling recovery around Europe.

The deficit should come to 1.2 percent of GDP this year, lower than the 1.4 percent projected in May, the proposal said. The deficit will be pushed to the European Union ceiling of 3.0 percent in 2015, unchanged from earlier government expectations.

“They forecast a budget exactly 3.0 percent leaving no room for a trip up on further expenditure,” Danske bank chief economist Steen Bocian said.

“They are using their room for manoeuvre to the maximum and that is defendable given the economic situation but you then have to focus on not breaching that magic 3 percent number.”

The EU ended its disciplinary budget action against Denmark in June after it met the EU Commission’s 2010 recommendations. The deficit last exceeded 3 percent in 2012 when it amounted to 3.9 percent of GDP.

Denmark posted a deficit of 0.9 percent last year, but the public finances of both 2013 and 2014 have been helped by revenues from incentivising early payment of taxes on pensions, according to the government’s budget outlook issued in May.

That positive impact will cease as of next year, partly explaining a return to the EU’s limit on deficits.


Domestic financing needs will increase to 162 billion Danish crowns ($29 billion), a separate statement from the Finance Ministry said, which is a 49 percent increase from the 109 billion crowns of borrowing that it expected this year due to larger state debt repayments obligations that year.

The 2014 financing needs were slightly reduced from 116 billion Danish crowns expected earlier.

Estimates for foreign borrowing needs this year were slightly reduced to the equivalent of 27 billion Danish crowns against 28 billion crowns expected earlier and set at 24 billion crowns next year.

Maintaining economic growth figures for 2014 and 2015 is a good sign for Denmark’s recovery, which had been more tentative than its Scandinavian peers even though the region has fared far better than the EU as a whole during the crisis years.

The proposal assumes economic growth this year of 1.4 percent and 2.0 percent in 2015.

Sweden’s central bank cut its 2014 GDP forecast last month to 2.2 percent from 2.7 percent due to a slow recovery in export markets, though that is still more robust than Denmark’s growth.

Economy Minister Margrethe Vestager sounded a note of caution in her remarks made in the budget proposal.

“The Danish economy is picking up again and we expect the positive trend to continue in the coming years,” she wrote. “We do not believe it (economic growth) will be speedy and it could be bumpy along the way but the trend is upwards.”

Like Sweden, Denmark’s export-led economy has been hampered by slow demand for its products from other EU countries, which are having a harder time to recover from crises of recent years.

The external risk remains; Germany’s GDP contracted in the second quarter of this year, to the surprise of many economists , helping to grind euro zone growth to a standstill for that period.

Denmark’s progress will be seen on Friday when it issues its second-quarter GDP figures. The economy grew 1.3 percent in the first quarter year-on-year and analysts polled by Reuters expect on average a 1.0 percent growth in the second quarter. (1 US dollar = 5.6494 Danish crown) (Additional reporting by Teis Jensen; Writing by Sabina Zawadzki; Editing by Alison Williams)

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