Denmark: No major economic changes expected with Rasmussen as Denmark's new PM
June 25, 2015
In Denmark’s 18 June general elections the center-right opposition block, led by Lars Lokke Rasmussen, triumphed over the left-leaning coalition government led by the Social Democrat party. While the shift in power is not expected to spur any major changes in terms of economic policies, the inability to build a majority coalition will represent a challenge for the future government.
The Social Democrats party led by Prime Minister (PM) Helle Thorning-Schmidt emerged as the strongest party with 47 seats in the next parliament, which was better than the 44 seats it gained in the 2011 general elections. Nevertheless, the result was not enough to form a government; the party’s main partners—the Danish Social Liberal Party and the Socialist People’s Party—lost a considerable share of votes compared to the previous parliament. Rasmussen’s Venstre party lost 13 seats from the previous parliament and came in third with 34 seats. However, the center-right block was strengthened by the surprise success of the Danish People’s Party (DPP), which came in second with 37 seats. The outcome was much better than the 22 seats they managed to secure in 2011. Shortly after the results were in, Thorning-Schmidt declared that her government would step down and that she would resign as the Social Democrats’ leader.
Following the announcement of the results, in accordance with the Danish constitution, the leaders of all the parties that were elected to the next parliament consulted with the Queen regarding their recommended candidates for prime minister. The recommendations showed strong support for Rasmussen, thus giving him the chance to lead the process to form a coalition government. Following unsuccessful coalition talks with the DPP and other smaller center-right parties, Rasmussen decided to govern alone. The DPP had repeatedly stated that it would not join the minority coalition unless ensured an influential role. In exchange for its support, the DPP had asked for a greater restriction on immigration and an increase in public spending, which Venstre wants to bring down. A minority government means that it may be difficult to pass major legislations in the future.
While there is still uncertainty regarding the government’s future economic policies, no big shift from the previous government’s reforms is expected. The government will most likely continue to implement tight fiscal policies in order to avoid large public deficits. Regarding this issue, Steen Bocia, Chief Economist at Danske Bank comments:
“A change of government in Denmark often does not result in any great change to short-term economic policy and we expect this will once again be the case. Naturally, economic policy differs between the political parties, but the budget and EU rules limit the scope of politicians to act in the short term. Hence, our forecast for the coming years is not particularly affected by the shift in government, although it naturally constitutes a source of uncertainty with respect to our estimates for government finances next year.”
While governing in minority represents a setback for Rasmussen, the shift in government is not expected to affect Denmark’s growth outlook. In this vein, FocusEconomics Consensus Forecast panelists did not change their 2015 GDP forecast from the previous month’s estimate. They expect the economy to expand 1.7% this year before accelerating to 1.9% growth next year.
Author: Dirina Mançellari, Senior Economist