Economic Survey, May 2009

28-05-2009

The Ministry of Finance has published the May 2009 edition of its Economic Survey.

Important points in the survey include: 

  • The escalation of the global financial turmoil last autumn has reinforced the slowdown in the Danish and the international economy that started already in 2007. Practically all OECD-countries had negative growth in the fourth quarter of 2008, and that will probably be the case also in the first quarter of this year.
  • Since last autumn, considerable easing of monetary and fiscal policy has taken place, which will have an increasing effect in the course of this year and next. This easing is expected to contribute to a gradual and moderate turnaround in activity. Output in the Danish economy in 2009 is in this context, but with considerable uncertainty, expected to be 2½ per cent lower than in 2008. In 2010 GDP is forecast to grow by 1 per cent.
  • Employment is expected to fall both this year and next, mainly due to the reduction in production that has already taken place. Unemployment is thus projected to rise to around 5 per cent of the labour force in 2010 (annual average), corresponding to 145,000 unemployed (full time equivalents). The economic set-back has already led to a rise in unemployment this spring, but from a low level. In March unemployment was still around 44,000 persons less than the previous low reached in November 2001.
  • Public finances are expected to weaken significantly. The fiscal surplus of 3.6 per cent of GDP in 2008 is forecast to turn into a deficit of 3.3 per cent of GDP in 2010. The cyclically adjusted fiscal balance is projected to be negative in 2010 (-¼ pct.), but is then expected to strengthen as the financing elements of the tax reform are gradually implemented.

Minister of Finance, Mr. Claus Hjort Frederiksen, states:

The swift Danish reaction to the financial crisis and the powerful easing of fiscal policy – more powerful than in most other countries – has laid the ground for getting Denmark through this crisis as gently as possible. This is a pro-active policy that will work with increasing strength through 2009 and 2010.

The Government will not hesitate to take further steps if required – with full consideration for the fixed exchange rate policy and ensuring long term fiscal sustainability.  We are entering a new situation, where the robustness of the public finances has weakened – both due to the cyclical set-back and due to the many fiscal initiatives. The Government’s clear aim is to avoid a crisis for public finances which appears to be in store in some countries. This is crucial in securing economic and social welfare in the longer term, and keeping interest rates low.

The fiscal policy for 2010 will be fully decided at the end of this year, when the Fiscal Bill for 2010 is passed in Parliament. Until then we will closely monitor and evaluate developments and make the necessary decisions, which can ensure that we get through the crisis as smoothly as possible and keep Denmark in a strong position when the upswing comes.

For further comments from the Minister of Finance, please contact:
Søren Gregersen, Head of Communication: Direct line: +45 33 92 40 08

For further comments on the forecast, please contact:
Jakob Hald, Deputy Permanent Secretary. Direct line: +45 33 92 40 63
Martin Jørgensen, Head of Division. Direct line: +45 33 92 41 38

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