The upturn continues despite heightened international uncertainty
The global backdrop for growth in the Danish economy has turned bleaker over the summer. Even so, the moderate recovery is set to continue with modest GDP growth and solid growth in the labour market. An additional 118,000 persons are expected to be employed by 2017, compared to 2012, according to the Economic Survey presented today by Minister of Finance Claus Hjort Frederiksen.
The uncertainty surrounding the global economy has increased over the summer – not least due to the British decision to leave the EU.
However, the foundation for continued growth in Denmark is still solid. In particular, increasing employment is boosting incomes and private consumption. Responsible fiscal policy as well as reforms to expand the labour supply contribute to preserving the positive trend in the labour market.
Thus, due diligence warrants that we look ahead in order to address future challenges, before they turn into problems.
The Danish economy is still heading in the right direction, and one should welcome the fact that more people gain a foothold on the labour market. Yet, we cannot escape the fact that the world has become more uncertain. Thus, it is paramount that we as a responsible government strive to ensure a prosperous future for the Danish economy. That applies to the current state of affairs, where we adjust fiscal policy gradually to keep it aligned with the state of the economy, as well as in the longer run, which we address in our comprehensive 2025-plan for a stronger Denmark, says Minister of Finance Claus Hjort Frederiksen and continues:
The government wants to pass a stronger Denmark on to coming generations. With the initiatives outlined in the 2025-plan we ensure that it pays to work, that businesses have good conditions for growth, and that public finances remain robust, so as to strengthen core welfare and be well prepared, when future challenges arise. I hope that all the parties in Parliament will join in.
The Danish economy is in a moderate upturn with slow growth (measured by GDP), but marked improvement in the labour market. This development is expected to continue despite heightened uncertainty for growth prospects in the global economy, following the British vote in June to leave the EU (Brexit). GDP growth is estimated at 0.9 per cent in 2016 and 1.5 per cent in 2017.
The growth forecast is revised down slightly relative to the Economic Survey in May. It is primarily due to less optimistic expectations for growth in Europe as a consequence of Brexit. The most recent information suggests, however, that the negative effects of Brexit in the short term will be relatively subdued outside the United Kingdom, partly because interest rates have decreased to the benefit of consumption and investments.
The labour market has been improving since late 2012. This is expected to continue during the forecast period, such that an additional 118,000 persons will be employed by 2017, compared to 2012. In line with this, there will be fewer idle resources in the labour market, which is starting to show in reports of increasing recruiting difficulties for employers. A gradual adjustment of fiscal policy and reforms to expand the labour supply contributes to counter the risk of bottlenecks in general.
Private consumption is supported by solid impetus from rising real wages and progress in the labour market, among others. Furthermore, housing prices and home equity are increasing, creating room for more consumption and housing investments.
Business investments are supported by low interest rates and higher demand. Capacity utilisation has increased to a more normal level, and firms’ need for need new production facilities is expected to rise steadily. Uncertainty surrounding the future growth prospects may, however, make firms postpone some investments a while longer.
Exports are expected to resume growth again over the forecast period, despite weaker global growth and heightened uncertainty. Nevertheless, the pace is modest, partly because a subdued trend in exports of shipping services weighs down overall exports, similar to last year.
The budget proposal for 2017 and the agreements with regions and municipalities imply that a safe distance to the deficit threshold, as defined by the Budget Act, is maintained. The estimated deficit on the structural balance is 0.4 per cent of GDP in 2017.
Read more about Economic Survey, August 2016