VZCZCXRO6367
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR
DE RUEHCP #0105/01 0610851
ZNR UUUUU ZZH
R 020851Z MAR 09
FM AMEMBASSY COPENHAGEN
TO RUEHC/SECSTATE WASHDC 4825
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 02 COPENHAGEN 000105 
 
SIPDIS 
 
STATE FOR EEB/IFD/OMA 
TREASURY FOR VIMAL ATUKOROLA 
COMMERCE FOR PAUL BUCHER 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD ELAB KTDB PGOV DA
 
SUBJECT: DENMARK: FEBRUARY ECONOMIC HIGHLIGHTS 
 
REF: COPENHAGEN 51 (BANK BAIL-OUT PLAN) 
 
Contents 
-------- 
 
EFIN: Bleak Days for Financial Sector 
ECON: Tax Reform Moves Forward 
ECON: Leading Economists Spout Gloom and Doom 
ECON: Worst GDP Numbers in more than 50 Years 
ETRD: Exports Lagging 
EAIR: SAS Launches New Strategy 
 
Bleak Days for Financial Sector 
------------------------------- 
 
¶1.  2008 was a dreadful year for the Danish financial 
sector, and 2009 has thus far shown no indication that it 
will be any better.  Most large Danish financial firms came 
out of 2008 with a loss or, at best, reduced profits 
compared to 2007.  The largest Danish bank, Danske Bank, 
ended 2008 with a meager net profit that was 1/15 the size 
of its 2007 profit due to a hefty non-performing loan 
portfolio.  The largest pension fund, ATP, had losses of DKK 
25.7 billion (approx USD 4.42 billion) in 2008 compared to a 
profit of DKK 2.9 billion (approx USD 498.3 million) in 
¶2007.  21 out of 22 Danish banks had double-digit profit 
reductions in 2008.  Many companies also had to make 
considerable write-offs from the books, a sure-fire signal 
of tough years ahead. 
 
¶2.  The avalanche of bad financial sector news has given 
rise to doubts as to whether the Danish government's recent 
bank bail-out package will suffice in stabilizing the Danish 
bank sector (reftel) or whether yet another bank package 
will be needed.  Minister for Economic and Business Affairs 
Lene Espersen claims that there will be no need for a new 
bank package, though she is contemplating extra help to the 
exporting sector beyond an already-allotted DKK 20 billion 
(approx USD 3.44 billion).  The government is also under 
pressure to formulate an overall economic stimulus package 
that goes beyond tax cuts, and the left-of-center opposition 
has already unveiled several proposals that call for massive 
public-sector spending. 
 
Tax Reform Moves Forward 
------------------------ 
 
¶3.  In order to forestall opposition demands for a massive 
economic stimulus package, Danish the government is seeking 
to push a tax reform package through Parliament as an 
alternative.  With the stated aim of reducing personal 
income tax (Danes are among the most heavily-taxed people in 
the world), the government proposal would reduce the tax on 
the wealthiest segment of Danish society from 63 to about 56 
percent.  Reductions will also be made through more modest 
but still significant cuts for middle-class and low-income 
taxpayers.  The reform is expected to be underfinanced until 
2015 in an effort to stimulate the Danish economy, and is 
projected to add 19,000 new jobs.  The opposition has been 
predictably dismissive of the proposal, with Social Democrat 
leader Helle Thorning-Schmidt stating that it is a plan that 
merely allows the rich to buy more red wine and flat-screen 
televisions and take more lavish holidays. 
 
Leading Economists Spout Gloom and Doom 
--------------------------------------- 
 
¶4.  Seven leading economists, including the current Chair of 
the Danish Economic Council and two of his predecessors, are 
predicting dire consequences for the Danish economy due to 
the current crisis and are echoing opposition calls for a 
stimulus package to help the economy.  They maintain that 
the Economic Council's bleak and negative projections from 
last November were not sufficiently pessimistic, and they 
now project negative GDP growth of 1.3 percent in both 2009 
and 2010, and unemployment rising to double digits by 2011, 
which is the earliest year a recovery can be expected.  The 
chief economist from a leading Danish bank has sounded an 
even more dire prediction of about 13 percent unemployment 
(Note: Danish unemployment has risen sharply in the past two 
months and the EU-harmonized unemployment rate currently 
stands at about 4 percent).  Yet another former head of the 
Danish Economic Council argues that the downturn might last 
5 to 7 years before Denmark once again sees positive GDP 
growth.  Most economists agree that a growth package of at 
least 1 percent of GDP (DKK 16 billion (approx USD 2.75 
 
COPENHAGEN 00000105  002 OF 002 
 
 
billion)) is needed, combining public investment, unfinanced 
tax cuts, and an active labor market policy. 
 
Worst GDP Numbers in More than 50 Years 
--------------------------------------- 
 
¶5.  Denmark's seasonally adjusted GDP contracted by 2.0 
percent from third-quarter to fourth-quarter in 2008. 
Expectations ranged from a drop of 0.8 to 1.5 percent so the 
actual number was much worse than anticipated.  For the year 
2008 as a whole, GDP contracted by 1.3 percent.  Compared to 
fourth-quarter 2007, fourth-quarter 2008 GDP was 3.9 percent 
lower.  The large contraction was generated by major drops 
in investment (3.9 percent Q4), private consumption (2.8 
percent Q4), imports (6.0 percent Q4) and exports (3.8 
percent Q4). (Statistics Denmark) 
 
Exports Lagging 
--------------- 
 
¶6.  The global slowdown in economic growth is causing major 
headaches for the Danish export sector. Exports fell by 8.5 
percent in fourth quarter of 2008 compared to the third 
quarter, and economists fear that the lack of demand for 
Danish goods abroad will last for a considerable time. 
Analysts attribute the drop to the dramatic economic 
slowdown in Denmark's primary export markets such as 
Germany, Denmark's most important trading partner.  At the 
same time, the Danish ability to compete has suffered 
because of wage increases above the European norm, and 
unfavorable exchange rate developments in important export 
markets such as UK, Sweden and Norway. 
 
SAS Launches New Strategy 
------------------------- 
 
¶7.  Scandinavia's largest airline SAS had a bad year in 
¶2008.  As a result of the loss of SEK 6.26 billion (USD 754 
million) in 2008, SAS launched a new strategy called "Core 
SAS."  The strategy includes a renewed focus on the 
Scandinavian home market, cutting 40 percent of its routes, 
selling foreign units and eliminating about 9,000 employees. 
There are also plans to sell as much as SEK 6 billion (USD 
726.4 million) in stock. The major SAS stockholders (the 
Danish, Swedish, and Norwegian governments) are in agreement 
that new capital is needed. 
 
McCulley