23.08.2011

A credible economic policy is the basis for growth


Today the Ministry of Finance publishes the Economic Survey, August 2011, with the following assessment of the economic outlook until 2012:

  • The estimated GDP growth in Denmark has been adjusted downwards to 1.3 per cent in 2011 compared to 1.9 per cent in the May Survey. In 2012 GDP is expected to grow by 1.8 per cent, which is in line with the previous estimate from May. The downward revision in 2011 reflects a significantly lower growth in private consumption and a weakened outlook for the international economy.
  • Gross unemployment (including persons in activation measures) is currently lower than last summer, contrary to expectations one year ago. Even though unemployment has increased markedly during the crisis, it is still lower than the last trough in 2001. This also applies to long-term unemployment. The estimate for gross unemployment has been revised upwards to 162,000 and 161,000 persons (5.6 per cent of the labour force) in 2011 and 2012 respectively, in light of the slowdown in Danish economy by the turn of the year and weakened international growth prospects. That is respectively 2,000 and 8,000 persons more in 2011 and 2012 than expected in May.
  • Weak private consumption, the slowdown in international growth outlook, and the fall in stock prices have increased the pressure on public finances. The fiscal deficit is estimated to DKK 68 bn (3.8 per cent of GDP) in 2011 and close to DKK 85 bn (4.6 per cent of GDP) in 2012 compared to a (preliminary) estimated deficit of DKK 48 bn (2.8 per cent of GDP) in 2010. The expected rise in the deficit in 2011 of DKK 20 bn primarily reflects markedly lower revenues from the pension yield tax following historically high revenues in 2010. In 2012 the deficit includes an assumed reimbursement of Voluntary Early Retirement Pension (VERP) contributions in line with the Pension Reform Agreement from the spring, which will strengthen public finances significantly in the longer run, thus constituting a pivotal element of the Government’s medium term fiscal strategy (2020 plan). The expected deficit in 2012 has been increased by close to DKK 5 bn compared to the May estimate.
  • The structural fiscal balance is expected to strengthen from -1.7 per cent of GDP in 2010 to -0.9 per cent of GDP in 2012. The EU-recommendation of fiscal tightening by 1½ per cent of GDP is adhered to in 2013.
  • In the last few months uncertainties regarding the development in the international economy have increased. The debt crisis in Europe is continuing and now affects larger countries. Growth in industrialised countries has slowed, while turmoil in financial markets has led to large declines in stock markets. The risk of a more negative development than expected in the projection has therefore increased. On the back of this, the government has launched the initiatives in the “Sustainable growth”-package. The initiatives are not included in the forecast.

Minister of Finance Claus Hjort Frederiksen states:

- This summer we have been reminded that unhealthy public finances and lack of fiscal credibility come at a high cost. Unfortunately, these costs are global, since the debt crisis reduce overall growth-prospects and threatens fiscal position in more prudent countries as well.

In Denmark the fiscal deficit is expected at DKK 85 bn (-4.6 per cent of GDP) next year. It is a key objective to steer clear of the immense debt problems that other countries are facing. This is also why we have spelled out concrete measures to maintain healthy public finances, including the Fiscal Consolidation Agreement and the reform of the Voluntary Early Retirement Pension this spring. This ensures credibility and  contributes to lower interest rates. And this may ensure that Denmark will not be affected by the returning financial turmoil.

The reforms have also given us a certain room of manoeuvre that many other countries do not possess. We can react with the “Sustainable Growth” package, now that there is a risk that the slowdown of the international economy will be more pronounced than expected in the Economic Survey, says Claus Hjort Frederiksen.

Annex:

Table 1: Key figures for the Danish economy
Table 2: Key figures compared to the May Survey.


Table 1

Key figures for the Danish economy (excluding effects from “Sustainable growth”)

2007

2008

2009

2010

2011

2012

Percentage change from previous year

Real GDP

1.6

-1.1

-5.2

1.7

1.3

1.8

Trade-weighted GDP abroad

3.2

0.6

-3.8

2.9

2.3

2.1

Markets for Danish manufactures

8.8

1.4

-10.0

8.0

6.3

5.8

International competitiveness

-2.8

-3.6

-3.3

2.8

0.1

-0.1

Export of manufactures, volume

2.2

1.3

-13.1

6.5

8.7

4.7

Hourly wages

4.1

4.6

3.0

2.7

2.5

2.8

Consumer price index

1.7

3.4

1.3

2.3

2.8

1.8

Price index for single-family houses

4.9

-3.7

-12.8

2.4

-1.0

0.3

Merchandise export prices

2.2

7.1

-6.1

4.6

3.6

1.8

Merchandise import prices

1.8

6.6

-9.0

4.5

5.1

1.8

Merchandise terms of trade

0.5

0.4

3.2

0.1

-1.4

0.0

Productivity in private non-agricultural sector

-0.1

-1.9

-2.4

5.8

2.0

2.4

Real disposable income of households1)

-0.8

0.5

0.32)

2.7

2.2

2.6

Labour market

Labour force (thousands)

2,939

2,960

2,922

2,878

2,870

2,877

Employment (thousands)

2,861

2,909

2,824

2,764

2,762

2,769

Of which in private sector

2,038

2,097

1,994

1,924

1,925

1,930

in public sector

823

812

830

840

837

840

Percentage change in total employment

2.8

1.7

-2.9

-2.1

-0.1

0.3

Gross unemployment (thousands)

103

74

129

164

162

161

Gross unemployment (per cent)

3.5

2.5

4.4

5.7

5.6

5.6

Unemployment (thousands)

78

52

98

114

108

107

Unemployment rate (per cent)

2.7

1.7

3.4

4.0

3.8

3.7

Unemployment rate, EU-def. (per cent)

3.8

3.3

6

7.4

7.3

7.1

Long term bond yields, exchange rate

10-year government bonds

4.3

4.3

3.6

2.9

3.2

3.6

30-year mortgage credit bond

5.4

6.1

5.5

4.7

5.1

5.2

The effective krone rate (1980=100)

103.2

105.8

107.8

104.0

103.8

103.9

Balance of payments

Goods and services (bn DKK)

38.7

55.2

63.2

92.2

91.9

87.2

Current account (bn DKK)

23.0

46.2

59.0

89.9

83.8

76.8

Current account (per cent of GDP)

1.4

2.7

3.6

5.2

4.7

4.1

Net foreign assets. ultimo (bn DKK)

-96.0

-98.7

75.6

167.5

240.8

318.2

Net foreign assets (per cent of GDP)

-5.7

-5.7

4.6

9.6

13.5

17.1

Public finances

Government net lending (bn DKK)

81.4

56.9

-46.5

-48.3

-68.2

-84.5

Government net lending (per cent of GDP)

4.8

3.3

-2.8

-2.8

-3.8

-4.6

General government gross debt,

year-end, (bn DKK)

466.9

600.1

691.9

760.7

778.9

823.5

General government gross debt,

year-end, (per cent of GDP)

27.5

34.5

41.8

43.7

43.6

44.4

Tax burden (per cent of GDP)

49.1

48.2

48.2

48.3

46.9

46.7

Expenditures (per cent of GDP)

50.0

51.0

57.2

57.1

57.0

56.8

1) Adjusted.

2) Including the disbursement of SP-savings, real disposable income grew by 4.0 per cent in 2009.






Table 2

Key figures compared to the May Survey

2011

2012

May

August

May

August

Percentage change from previous year

Private consumption

1.8

0.3

2.3

2.4

Total public demand

0.3

0.6

-0.1

0.0

- public consumption

-0.3

0.1

0.5

0.4

- public investment

7.0

7.3

-7.0

-4.7

Residential construction

2.6

7.0

3.3

3.0

Fixed business investments

6.1

-0.1

5.9

6.6

Final domestic demand

1.8

0.7

2.0

2.2

Stock building (cont. to GDP growth)

0.1

0.1

0.0

0.1

Total domestic demand

1.9

0.7

2.0

2.3

Exports of goods and services

4.6

5.7

3.7

3.6

- of which manufactures

5.5

8.7

4.6

4.7

Total demand

2.8

2.5

2.6

2.8

Imports of goods and services

4.8

5.0

4.5

4.8

- of which goods

4.7

5.5

4.2

4.6

GDP

1.9

1.3

1.7

1.8

Gross value added

1.9

1.3

1.8

1.7

- of which private sector

3.2

2.2

2.9

2.7

Change in 1,000 persons

Labour force

-4

-8

4

6

Employment

3

-2

7

7

Of which in private sector

3

1

7

4

in public sector

0

-3

0

3

Gross unemployment

-4

-2

-8

-1

Net unemployment

-7

-6

-3

-1

Note: Estimates in August does not include effects from the ”Sustainable growth”-package.



Table 2 - continued

Key figures compared to the May Survey

2011

2012

May

August

May

August

Percentage change from previous year

Merchandise export prices

3.0

3.6

1.4

1.8

Merchandise import prices

4.2

5.1

1.2

1.8

Merchandise terms of trade

-1.1

-1.4

0.2

0.0

House prices, single-family house

0.5

-1.0

0.0

0.3

Consumer prices

2.5

2.8

1.5

1.8

Hourly compensation, private sector

2.5

2.5

2.9

2.8

Real disposable income, private sector

2.2

1.3

2.3

2.2

Real disposable income of households1)

2.0

2.2

3.3

2.6

Productivity in private non-agricultural sector

2.9

2.0

2.5

2.4

Per cent per year

Interest rate 1-year adjustable rate loan

1.8

1.7

2.7

2.6

10-year government bonds

3.6

3.2

4.0

3.6

30-year mortgage credit bond

5.2

5.1

5.6

5.2

Balances

Current account (bn DKK)

81.1

83.8

81.2

76.8

Government net lending (bn DKK)

-74.3

-68.2

-80.0

-85.2

Gross unemployment (thousands)

160

162

152

161

Net unemployment (thousands)

107

108

104

107

External assumptions

Trade-weighted GDP abroad, per cent

2.6

2.3

2.3

2.1

Markets for Danish manufactures, per cent2)

7.0

6.3

6.2

5.8

Exchange rate, DKK per $

5.2

5.3

5.1

5.2

Oil price, $ per barrel

110.3

112.9

109.1

113.2

Oil price, DKK per barrel

569.9

594.2

552.5

589.4

1) In 2012, the reimbursement of VERP-pension is included.




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