VZCZCXRO9059
RR RUEHIK
DE RUEHCP #0507/01 3201237
ZNR UUUUU ZZH
R 161237Z NOV 09
FM AMEMBASSY COPENHAGEN
TO RUEHC/SECSTATE WASHDC 5304
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 COPENHAGEN 000507 
 
SIPDIS 
 
STATE FOR EEB/IFD/OMA, EEB/TPP/ABT, EUR/NB 
TREASURY FOR DAVID WRIGHT 
COMMERCE FOR PAUL DACHER 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EIND ETRD KTDB PGOV DA
 
SUBJECT: DENMARK OCTOBER ECONOMIC HIGHLIGHTS 
 
COPENHAGEN 00000507  001.2 OF 002 
 
 
Contents: 
--------- 
ECON: Sober Outlook for the Danish Economy 
ECON: Health Costs to Increase Public Budget Pressures 
ECON: Danes are Saving, not Spending 
ECON: Denmark by the Numbers 
 
Sober Outlook for the Danish Economy 
------------------------------------ 
¶1. Danish Minister of Finance Claus Hjort Frederiksen announced in 
mid-October the revision of the Government's Economic Survey from 
August.  The Government now expects a contraction in GDP for 2009 of 
4% (versus the 3% contraction projected in August), and GDP growth 
in 2010 of 1% - 11/2% (the August projection was 1% growth for 
2010).  The Minister also revised the public deficit estimates.  The 
Government now projects a DKK 90 billion deficit (USD 18 billion) 
for 2010, which represents about 5% of GDP and well over the 3% 
limit allowed in the EU Stability and Growth Pact. 
 
¶2.  The Danish National Economic Council released its biannual 
report on the Danish economy in late October.  Though the Council 
believes the bottom of the crisis has been reached, it predicts a 
slow recovery requiring several years to regain pre-crisis 
production levels.  The Council expects GDP to contract by 4.8% in 
2009, and growth of 1.1% in 2010 followed by a slow, prolonged 
recovery.  The report finds current government stimulus initiatives 
lacking and recommends additional spending of DKK 10 - 15 billion 
(USD 2 - 3 billion).  Without further stimuli, the Council forecasts 
a doubling of unemployment before end-2010.  The Council faulted the 
government for exercising insufficient prudence during good years 
with too much public spending and tax cuts, and for failing to carry 
out labor market reform, making the downturn worse. 
 
Health Costs to Increase Public Budget Pressures 
--------------------------------------------- --- 
¶3. Denmark spent DKK 99 billion (USD 19.8 billion) on health care in 
¶2000.  That figure increased to DKK 125 billion (USD 25 billion) in 
2008 -- a 27% increase in eight years.  The Danish Economic Council 
projects that healthcare costs will increase faster than previously 
expected and will lead to increased pressure on the public budget. 
According to the Council's estimates, Denmark will need an 
additional DKK 54 billion (USD 10.8 billion) annually to maintain 
the current level of public services, including healthcare, as 
compared to the Government's earlier estimate of DKK 14 billion (USD 
2.8 billion) annually.  The report comes on the heels of an 
early-October report by the Dream Group stating that government 
estimates of future annual social welfare costs (which includes 
healthcare, education, and other social support spending) undershot 
the actual costs, which they estimate will be as much as DKK 40 
billion (USD 8 billion) annually.  The Government had dismissed the 
Dream Group report as inaccurate, but has come under renewed 
pressure with the release of the Economic Council report.  To offset 
the projected cost increases, the Economic Council recommended a 
health tax and the removal of tax deductibility of private health 
insurance premium payments.  The Chairman of the Organization of 
Regional Governments is also suggesting a health tax to pay for the 
anticipated increased costs due to demographic trends and generally 
more expensive medicine. (NOTE: Regional government budgets are the 
mechanism through which much of Danish health care, particularly 
hospitals, is financed. END NOTE)  Minister of Taxation Kristian 
Jensen is against increased taxes and feels that more focus on 
preventive care and improved efficiency in the health sector will 
stem the rising costs. 
 
Danes are Saving, not Spending 
------------------------------ 
¶4. The Danish savings rate is currently at 14% of personal 
disposable income, the highest level since 1986.  This is up sharply 
from the 2007 level of 9%.  Danes have contracted their private 
spending more than any other OECD country over the past year, 
according to the Ministry of Finance.  That this increase in saving 
has come after tax cuts, the distribution of frozen pension funds, 
and a relatively low unemployment rate has local commentators 
puzzled.  Seasonally adjusted retail sales were down 1.7% from 
August to September, following a 1.3% drop the previous month.  The 
usage of the Dankort, the primary method of point-of-sale payments 
in Denmark, fell by 1.6% from August to September, the second month 
in a row with a decrease in turnover from the card.  Some local 
experts argue the increased saving stems from new tax rules that 
make retirement savings deposited before the end of the year more 
attractive, while others speculate that the massive drop in housing 
values are leading people to save and not spend.  So far, the 
increased saving is bad news for the Government's plan to kick start 
the economy by stimulating private consumption. 
 
Denmark by Numbers 
 
COPENHAGEN 00000507  002.2 OF 002 
 
 
------------------ 
¶5. Denmark had the fifth highest annual increase in unemployment 
among the EU27 countries from 2008 Q2 to 2009 Q2.  Denmark started 
at 3.1% unemployment in the second quarter of 2008, which almost 
doubled to 6.1% by the end of the same period in 2009, almost three 
times the EU average rate of increase.  Official unemployment 
statistics (a more narrow measure than the standard OECD jobless 
measure) showed a renewed increase in the rate of unemployment. 
Extrapolating from the most recent OECD statistics, we estimate 
total Danish unemployment at 6.6%.  Confidence indicators (which are 
an indicator of expectations for the coming three months in the 
industrial, service and construction sectors) still show a negative 
outlook.  The composite industrial indicator (a scale from -100 to 
100) was unchanged at -8, though expectations for future production 
increased while expectations for employment and sales prices fell. 
Expectations in construction continue a downward slide, though at a 
slower rate.  They are still at a very low level with the composite 
construction indicator at -49, and expectations that new orders will 
be even a bit more negative in October than September.  All branches 
of the construction sector expect negative developments in 
employment, turnover, and prices over the next three months. 
Expectations in the service sector, however, are turning up with the 
composite indicator at -8, up from -13 in September and -25 in 
March.  With these confidence measures broadly indicating 
expectations of continued economic sluggishness, local commentators 
are speculating that the recession will continue through fourth 
quarter of 2009. 
 
FULTON