Danish house prices will extend declines through 2013 and weigh on economic growth, the government-sponsored Economic Council said.
House prices will fall 4.9 percent this year and 1.2 percent next year, before recovering 1.7 percent in 2014, the council, known as the “Wise Men,” said in its periodic review of the Danish economy. Private consumption growth will slow to 1.3 percent next year from 2.3 percent in 2012, it said.
Denmark is struggling with a burst real estate bubble that has spilled over into the banking industry and helped tip the economy into a recession in the third quarter. Five banks collapsed last year, prompting lenders to rein in credit and spurring the government to pass new measures to support businesses and farms.
“House prices continue to be slightly over the long-term equilibrium level,” the council, which advises the Danish government, said in its report. “Inflation will also erode real house prices significantly.”
The council said gross domestic product will expand 1.3 percent this year as the government implements measures to spur the economy. Growth will slow to 1.2 percent in 2013, it estimated.
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