Copenhagen: Denmark's government lowered its forecast for economic growth this year and in 2012 as the Nordic region's weakest economy grapples with a twin bank and housing market crisis that saps consumer spending.

Denmark's gross domestic product will expand one per cent this year and also in 2012 compared with November 3 government forecasts of 1.1 per cent and 1.3 per cent, respectively, the Copenhagen-based economy ministry said yesterday in a statement.

Denmark's house prices have dropped to a six year-low and banks are cutting lending after the February failure of local lender Amagerbanken triggered senior creditor losses and increased funding costs for Danish banks.

The government, which has pledged to spend about $2 billion to stimulate the economy, said private consumption will pick up from next year and help make economic growth self-sustaining from 2013, when it expects the economy to expand 1.4 per cent.

"We share the government's short-term growth forecast but think it's optimistic for 2013," Steen Bocian, chief economist at Copenhagen-based Danske Bank, said in an email.

"The government underestimates the crisis on the housing market which affects consumption."

The budget deficit will be four per cent of GDP this year compared with three per cent expected previously, the ministry said. The 2012 deficit will be 5.5 per cent compared with November's forecast of 5.1 per cent.

Denmark will meet the European Union criteria of a deficit below three per cent of output in 2013 when it will shrink to 2.6 per cent of GDP, the ministry said.

"The government will safeguard confidence in the Danish economy by pursuing a credible and responsible economic policy," Margrethe Vestager, minister for the economy, said in the statement.

"The current situation highlights the importance of implementing reforms and consolidating public finances. International confidence is in fact the very best protector of a stable Danish economy."

Private consumption will decline 0.8 per cent this year and expand by the same rate in 2012, the ministry said. Consumption will pick up to grow two per cent in 2013, according to the ministry.

  • 1%: expansion in GDP this year and next year
  • 1.4%: expansion in GDP expected in 2013
  • 2.6%: expected budget deficit in 2013, below EU criteria