Denmark Will Limit Spending in 2019 Budget, Document Shows

(Bloomberg) -- The Danish government plans to limit spending next year to prevent overheating in an economy that’s already registering bottlenecks in the labor market.

A 2019 budget draft seen by Bloomberg shows almost no increase in spending compared with this year. In isolation, the budget will have a negative effect on 2019 gross domestic product of about 0.2 percentage points, the finance ministry estimates. That’s double the negative effect of this year’s budget.

“Reforms must continue to keep the upturn going,” Finance Minister Kristian Jensen said in a statement seen by Bloomberg. The government will attempt to strike a balance between keeping up economic growth and making sure that Danes “benefit from the good times,” he said. “That requires discipline and overview.”

The government is due to present the documents on Thursday in Copenhagen.

The budget proposal comes as the center-right minority government seeks to obtain a second mandate in a general election that must take place before the middle of June of 2019.

Economists had cautioned against an expansionary budget after Jensen had vowed to drop the government’s target of zero spending growth in the public sector because of higher demand for health care services, defense and policing.

A budget that lowers GDP by 0.2 percentage points “will suffice, particularly considering we’re in an election year,” Nordea Chief Economist Helge Pedersen said by email on Thursday.

The Danish government also cut its economic growth forecast for 2018 but raised it for 2019, according to a separate document.

The economy ministry now expects GDP to grow at 1.8 percent in 2018, compared with a May forecast of 1.9 percent. GDP also is set to grow at 1.8 percent next year, rather than 1.7 percent predicted previously, according to the document.

©2018 Bloomberg L.P.