DENMARK: MAY ECONOMIC HIGHLIGHTS

UNCLAS SECTION 01 OF 02 COPENHAGEN 000260 SIPDIS STATE FOR EEB/IFD/OMA AND EEB/TPP/ABT TREASURY FOR DAVID WRIGHT E.O. 12958: N/A TAGS: ECON EFIN ETRD ELAB KTDB PGOV DA SUBJECT: DENMARK: MAY ECONOMIC HIGHLIGHTS ¶1. Contents: ELAB: Is Danish Bacon an Endangered Species? ECON: Danes in the Red EWWT: The Nation that Launched the Vikings no Longer Builds Ships ENRG: Danish Wind Goes West ETTC: Novo Nordisk Settles Oil for Food Scandal Involvement ECON: Denmark by Numbers Is Danish Bacon an Endangered Species? -------------- ¶2. New estimates from the organization Danish Pig Production show that the financial crisis combined with high wages in the pig production industry is threatening the business which accounts for roughly a fifth of Danish exports. Pork producers have lost a projected DKK 7 billion (USD 1.34 billion) since October 2007 due to German and Polish competitors. The crisis and unfavorable wage competition now have some questioning the continued viability of pork production in Denmark. Total costs in the industry run to more than DKK 250 (USD 48) an hour in Denmark; in Poland, costs are a sixth of that amount. Danish Pig Production is now calling for a wage reduction of 20 - 50 percent for pig processing employees, or suggests replacing the current workforce with cheaper labor from Poland. The trade unions in turn have threatened unrest if the industry abandons its labor accord. Danish Crown, Europe's largest meat processing and pig slaughtering company, is pushing through a crisis plan projected to cut costs by DKK 1.3 billion (USD 250 million). So far, Danish Crown denies plans to switch to a cheaper labor source. Danes in the Red -------------- ¶3. Danish households now hold their biggest debt burden in 25 years, with debts averaging 60 percent of the value of people's houses, compared to only 40 percent at the height of the housing market a couple of years ago. Recent studies show that 7 percent of Danes aged 31 - 59 (an age group were savings should have picked up after some years on the job) have debts in the amount of twice their annual salary after taking into consideration the value of their assets, and that the poorest 10 percent of the population have an average net debt of DKK 417,000 (USD 80,000). That equals six years average pay for that group, a debt they in all likelihood will never be able to repay. Some media have reported large numbers of overextended consumers applying to appear on the TV show "The Luxury Trap," to get free economic counsel in hopes of a way out of their debt. The Nation that Launched the Vikings no Longer Builds Ships -------------- ¶4. Denmark's biggest shipyard, Lindovaerftet, owned by the ¶A. P. Mxller Maersk group and a source of many of Maersk's container ships and tankers through the years (including the world's largest container ship Emma Maersk),is in immediate danger of shutting down. Lindovaerftet's order book is running empty this year, since neither Maersk nor any other shipping company has placed any new orders. The shipyard has enough remaining orders to keep it running for the rest of the year, but for mainly smaller ships that don't support Lindovaerftets' current level of employment. With 3,000 jobs at stake, the shipyard's loss would translate into one of the biggest closures in Danish business history. A decision on continued operations is expected before the end of the summer. Danish Wind Goes West -------------- ¶5. The Danish Wind Industry Association is shifting focus from the Chinese market to the American market. Many subcontractors in the wind turbine industry are expected to set up sales offices, production, or both in the U.S. in the near future. Danish wind turbine giant Vestas is currently building the world's biggest wind turbine tower factory in Colorado, for a total investment of USD 1 billion. The project is estimated to provide 2,500 new jobs. Vestas CEO Ditlev Engel met with Secretary of the Interior Ken Salazar in early May at a Chicago wind turbine conference and commented that he was very happy to have a dialog with the Interior Department, especially since the development of U.S. electricity grids and wind turbine parks falls within DoI's areas of responsibility. Novo Nordisk Settles Oil for Food Scandal COPENHAGEN 00000260 002 OF 002 -------------- ¶6. The Danish pharmaceutical company Novo Nordisk announced May 11 that it had settled a case out of court with the U.S. Department of Justice and the U.S. Securities and Exchange Commission related to violations of the UN Oil for Food program in Iraq. Novo Nordisk was fined USD 9 million by DoJ and was required to pay an additional USD 9 million by the SEC in the form of returned profits. In 2000 - 2003 Novo Nordisk was suspected of 11 cases of "return commissions" worth USD 1.4 million to Kimadia, the Iraqi State Company for Importation and Distribution of Drugs and Medical Appliances. Danish police have now reopened their case against Novo Nordisk, a case that was closed just six weeks ago. Novo's CEO commented that he was deeply troubled by the damage to the company's image and to the morale of its employees, and said that steps had been taken to strengthen Novo's internal oversight procedures. Denmark by Numbers -------------- ¶7. The Danish National Bank followed the ECB and lowered the leading interest rate on May 7 to 1.65 percent, down from 2.0 percent. The IMF projects a contraction of GDP by 4 percent in 2009, EU projects 3.3 percent, the Danish Economic Council 2.9 percent and the government a 2.5 percent contraction. Projections for 2010 lie between zero and 1 percent growth. Employment has dropped 3.6 percent since April 2008 and twice that amount is expected to leave the workforce before the current economic crisis is over. Extrapolating from OECD's most recent March statistics, we estimate the current unemployment rate in Denmark at around 6.2 percent. Changes in the labor market have not manifested themselves in the development of wages yet as average nominal wages increased annually by a surprising 4.3 percent in the first quarter of 2009. With inflation around 1.4 percent this should be good for disposable income, but bad for overall Danish competitiveness. McCulley