The Danish economy was hit by the international economic recession in 2008 causing significant reductions in production and employment.
However expansionary fiscal and monetary policy in most countries has helped the world economy to recover, and production in Denmark is estimated to increase by approx. 2 per cent throughout the past year. Gradually, the growth in production is expected to become self-sustaining in 2011, cf. Economic Survey, August 2010.
In order to support growth and employment fiscal policy has been eased in 2009 and 2010. The policy stimulation has dampened the increase in unemployment, but it has also contributed to the largest deficit on the general government finances since the mid-1980’s. In light of the large deficits central government debt is expected to increase from 11 per cent of GDP in 2008 to 26½ per cent of GDP in 2011.
The deficit on the general government budget balance in 2010 and 2011 are expected to exceed the reference value of 3 per cent of GDP in the Stability and Growth Pact of the European Union. On this basis Denmark has received a recommendation adopted by the EU Council of Finance Ministers (ECOFIN) to tighten fiscal policy by 1½ per cent of GDP during the period 2011-2013. The general government budget deficit is estimated at 4.6 per cent of GDP in 2010 and 4.4 per cent of GDP in 2011.
The government and Danish People’s Party have in May 2010 agreed to restore Danish economy with the Fiscal Consolidation Agreement. The agreement consolidates general government finances by DKK 24½bn corresponding to 1½ per cent of GDP from 2011-2013. Measures include expenditure cuts as e.g. higher personal income taxes and reforms on the labour market. The Fiscal Consolidation Agreement meets the recommendation received from ECOFIN.