The Danish economy is progressing – focus on public finance consolidation
Today, the Ministry of Finance publishes the Economic Survey, May 2010.
Main points in the survey are:
- The Danish economy has escaped the downturn that followed the escalation of the financial crisis in September 2008. During the second half of 2009 activity has risen and the expansion is expected to continue.
- GDP is projected to grow by 1.4 per cent this year and 1.7 per cent next year. This year, growth is primarily driven by the exceptionally expansionary monetary and fiscal policies, while it is expected to become more self-sustainable next year.
- Unemployment has developed more favourable over recent months than previously expected. A further increase in unemployment is still expected in the remaining part of 2010, but the estimate for registered unemployment has been revised down significantly to 130,000 persons this year and 135,000 next year (4½ and 4¾ per cent of the labour force, respectively).
- Denmark is one of the countries with the most expansionary fiscal policy in 2009 and 2010. This has led to a marked weakening of public finances. The public deficit is estimated to 88 bn. DKK (5.1 per cent of GDP) in 2010 and 79 bn. DKK (4.4 per cent of GDP) in 2011. A key priority going forward is to consolidate public finances in order to reach the target of structural balance in 2015.
- The deficit (in 2010) is higher than the reference value of 3 per cent of GDP in the Stability and Growth Pact, and Denmark has therefore become subject to the ‘excessive deficit procedure’ in the EU. Within a couple of months, Denmark is expected to receive a recommendation to strengthen the structural balance by ½ per cent of GDP per year on average in 2011-2013.
- For Denmark and a number of other countries with relatively sound public finances, the consolidation process will start in 2011. The OECD, the IMF and the general guidelines that the EU countries have agreed upon, recommend that fiscal tightening should start no later than 2011.
The Minister of Finance, Claus Hjort Frederiksen, states:
The Danish economy is progressing. Confidence has strengthened, exports are growing, and private consumption seems to be rebounding. Growth is primarily driven by economic policies in Denmark and abroad, and fortunately the increase in unemployment has been much lower than we expected. The developments in recent months have underlined that sound and credible fiscal policies are key to ensure a sustainable recovery. Our key priority at this juncture is to consolidate public finances and reach a balanced budget in 2015.