Budget Outlook, December 2009

11-12-2009

The Danish economy is still affected by the international economic recession in the wake of the financial crisis last fall.

However, some indicators of a gradual recovery in international economic activity have surfaced lately. Unemployment is still expected to increase – especially due to the marked downturn in production, which has occurred – although at a declining pace, cf. Economic Survey, December 2009. At the same time, substantial fiscal policy measures have been initiated to support growth and employment. Both fiscal policy and the declining interest rate are expected to take effect by an increasing strength in 2010.        

Due to weak cyclical conditions and expansionary fiscal policy a significant deterioration of general government finances are expected. On the general government budget balance the large public surpluses in recent years are expected to be followed by large deficits amounting to DKK 50¼bn in 2009 (3.0 per cent of GDP) and DKK 94½bn in 2010 (5.5 per cent of GDP). The general government budget balance is estimated to decrease by DKK 154bn from 2008 to 2010. This corresponds to a deterioration of 8.9 per cent of GDP where approximately one third reflects the loosening of fiscal policy. The reduction illustrates that the public finances in Denmark are very sensitive to cyclical changes and trends in financial markets.

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