SHARE THIS ARTICLE Share Tweet Post Email

Denmark’s government is already feeling the effect of a selloff in equities as its revenue succumbs to declining markets.

The Finance Ministry in Copenhagen said the budget deficit in 2015 will be more than twice as big as previously estimated, mostly due to a slump in taxes from Danish pension assets. Combined with the plunging price of oil, the development will leave Denmark with less money from which to pay for welfare services, Finance Minister Claus Hjort Frederiksen said on Monday.

With his ministry noting the Danish budget is “particularly sensitive” to shifts in the global economy, Frederiksen told reporters he can’t say whether tax revenue will continue to suffer through the rest of the year. Even after the recent rout, Danish benchmark stocks are still up about 13 percent this year.

But Denmark’s OMXC20 benchmark index opened about 5 percent lower on Monday as a global selloff that has gripped Asia continued into the European trading day. Since Aug. 11, when China shocked markets by devaluing the yuan, more than $5 trillion has been erased from the value of global equities.

Denmark’s new government said it will need to borrow 14 percent more in 2016 after cutting its economic forecasts and predicting wider budget deficits.

The need for krone-denominated financing will grow to 144 billion kroner ($22 billion) in 2016, according to the finance ministry. Including foreign-currency debt issuance, the government plans to borrow 167 billion kroner next year.

The budget deficit was revised to 2.7 percent of GDP this year, more than twice the 1.3 percent previously estimated. The gap will widen to 2.8 percent next year, the Finance Ministry said.

Market Rout

“It’s rather a large revision of public revenue, but Denmark has been notoriously poor at predicting how the public sector has developed,” said Steen Bocian, chief economist at Danske Bank. Part of the deterioration in public finances is linked to the market rout, which has eroded pension returns and depleted tax revenue, he said. “The pension revenue tax really is beyond government control,” he said.

Denmark predicted a bigger borrowing need as government bond sales remain suspended. Auctions were halted at the end of January to keep speculators out of AAA-rated Danish assets and central bank Governor Lars Rohde said in June Denmark can keep issuance suspended until “at least 2016.”

The Liberal government of Prime Minister Lars Loekke Rasmussen sees gross domestic product expanding 1.5 percent this year, compared with 1.7 percent estimated by the Social Democrat-led coalition that was ousted in June elections. GDP will expand 1.9 percent in 2016, also less than the 2 percent previously foreseen, the Finance Ministry said. The economy grew 1.1 percent in 2014.

The $350 billion economy has been slower to recover from the global financial crisis than neighboring Norway and Sweden after its housing collapse stunted household demand. But years of record-low interest rates to help defend Denmark’s euro peg have revived the property market and restored consumer confidence.

House prices will rise 6.5 percent this year and 4 percent in 2016, according to the Finance Ministry. Prices rose 3.4 percent in 2014.