Recovery? What recovery?

by Ray Weaver While some economists say things are getting beter, the statistics tell a different story The financial crisis continues to swing a brutal scythe through the economy. The number of people in bad standing with the RKI credit...

by Ray Weaver

While some economists say things are getting beter, the statistics tell a different story

The financial crisis continues to swing a brutal scythe through the economy. 

The number of people in bad standing with the RKI credit agency has spiked dramatically during the recession. RKI now lists nearly 230,000 people as “bad debtors” – those who are unable to pay what they owe. Between them they owe more than 14 billion kroner. That number increased by one billion kroner this year alone, and the average debtor is just over 64,000 kroner in arrears, as opposed to 40,000 kroner before the crisis began.

"It is clear that the economic crisis has not missed the average person,” René Ostenfeld, an analyst at Experian told Jyllands-Posten newspaper. “A steady stream of debtors is being added to the rolls, and each of them owes more than those that came before them.”

Meanwhile, one in ten houses for sale in the country is on the market due to a court-ordered foreclosure. There were 414 compulsory home sales in May, compared with 398 in the month before, according to statistics bureau Danmarks Statistik. In the Copenhagen area, 27 percent of the houses on the market were foreclosures. Lise Nytoft Bergmann, a spokesperson for Nordea bank, saw no sign of improvement on the horizon.

“The high number of home repossessions is due to the length of the crisis,” Bergmann told the media. “As the crisis drags on, families run out of money and compulsory sale is the only solution.”

Danmarks Statistik's numbers revealed that 40 percent of the repossessions last year involved houses or flat purchased during the boom years of 2005-2008.

Fears are increasing that the government’s plan to reduce the tax deduction for interest paid on mortgages will increase the number of people losing their home. Senior economist Mikkel Høegh from BRF Kredit, a mortgage lender, warned that any future combination of higher taxes and rising interest rates would send even more borrowers over the edge.

“For those holding larger mortgages with a variable interest rate, the tax deduction acts as a shield against rising interest rates,” Høegh told Berlingske newspaper.

Despite the fact that more people could lose their homes, the tax minister, Thor Möger Pedersen (Socialistisk Folkeparti), defended the proposal to reduce the deduction.

“Interest rates have far greater effect than a minor adjustment in the tax deduction,”Pedersen told Berlingske. “I think it is only fair that those who could afford to take out big mortgages should be responsible for paying more of the interest on their own.”

The situation is just as grim for businesses. Some 477 companies filed for bankruptcy in May, compared with 363 in April, according to Danmarks Statistik. That 23 percent rise is the largest one-month increase since 2008.

The trade and transport sectors were particularly hard hit, accounting for 41 percent of all the bankruptcies in May. Although businesses across the country felt the pinch, Jutland was particularly hard hit, and more than 40 percent of the businesses going belly up were located in mid-Jutland.

Nikolaj Pilgaard, of Dansk Industri, a business lobby organisation, was concerned about the high rate of bankruptcies.

“Companies are still feeling the effect of the fragile economy and it’s difficult to see any sign of improvement in the near future,” Pilgaard told Berlingske.

A particularly troubling sign was the age of the companies that went bankrupt. The businesses that closed were nine years old on average, the highest on record.


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