Danish Growth Forecast Cut Is Bad News for Next Government

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Denmark’s next government may have to deal with a softer economy after an advisory body lowered its growth estimates for 2019 and 2020, citing the global slowdown.

Denmark’s gross domestic product will expand 2% this year and 1.7% in 2020, the Danish Economic Council said in a report published on Tuesday. That compares with December growth estimates of 2.4% and 2.1%, respectively, and is more upbeat than forecasts published earlier in the day by Danske, the country’s biggest bank.

Denmark’s economic prospects are more “modest” due to weaker growth in the Nordic country’s main export markets, especially Germany, the council said. It also said that Danish growth would have been “considerably lower” had the country not introduced labor market reforms and allowed foreign workers to join the labor force.

Read more: Denmark’s Economy Disappoints One Week Before National Elections

The Social Democrats emerged as the biggest party in a June 5 general election, with leader Mette Frederiksen currently working to form a government to replace the outgoing center-right coalition. The party won the election in part by promising more welfare and a strict immigration policy.

Tore Stramer, an economist at Nykredit, said the council’s report and risks of overheating suggests the next government should stick to a reform designed to raise the retirement age and keep a tight fiscal policy. The central bank, for its part, said the report was “generally in line” with its own assessment and that “a ‘soft landing’ is possible.”

The main task of the state-backed council, which comprises representatives from the unions, employers, the Danish central bank and the government, is to provide independent advice to the government.

Here are the council’s other forecasts:

• Inflation seen at 1.1% in 2019 (versus December forecast of 1.8%); 1.7% in 2020 (versus 1.9%)
• Wage growth seen at 2.7% in 2019 (versus 2.9%); 3.2% in 2020 (unchanged)
• Employment gap seen at 22,000 people in 2019 (versus 33,000); 18,000 in 2020 (versus 33,000)

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