Denmark Raises Growth Outlook as Upswing Offsets Virus Surge

(Bloomberg) -- Denmark now sees its economic growth matching the fastest pace in almost three decades, predicting an outbreak of the new virus variant won’t derail a boom in the Nordic nation.

Gross domestic product will probably expand by 3.9% this year, up from a previous forecast of 3.8%, the finance ministry said in a statement. The forecast, that would equal the increase in 2006 and hasn’t been exceeded since 1994, was first reported by Bloomberg on Thursday.

The Nordic country -- which has weathered the fallout from the pandemic as one of the best in the rich world -- has some of the highest numbers of omicron cases. It introduced new restrictions earlier this month, but stopped short of last year’s lockdowns, to fight the virus as infection rates jump to all-time highs. 

“We can conclude that the Danish economy so far has performed well through the corona crisis and is in great shape,” Finance Minister Nicolai Wammen said in the documents. “The strong Danish economy means that there’s no longer a need for fiscal policy to stimulate the economy.”

This year’s growth has been driven by private consumption, which is set to rise 4.3%, according to the government’s estimate. The recent surge in the virus “won’t fundamentally change the growth outlook,” the ministry’s documents said. The economy will grow 2.8% next year, unchanged from an August estimate.

As cases of the new variant are now doubling every other day, health authorities recommended on Thursday that the government put in place more curbs.

Economists have warned of a risk of overheating as the unemployment rate keeps falling and inflation is at the highest in 13 years. Estimates suggest that unemployment will drop to 2.4% in 2022, down from 3.3% in the most recent forecast from August, which is worrying, Chief Economist Las Olsen at Danske Bank said, adding it’s “not very likely” that the potential new shutdowns will seriously change the growth outlook.

“With such low unemployment there is a basis for significant wage hikes, and there is a clear risk that the competitiveness will run off track and lay the foundation for the next crisis,” Olsen said in a note to clients.

Wammen said in the documents that the economy can continue to grow despite a tight labor market because of high household spending power and strong businesses confidence. Still, he said the spread of the omicron variant is “worrying and creates new uncertainty.” 

Separately, the finance ministry lowered its financing need estimate for this year and the next, citing higher tax revenue, among other things. The government will need to borrow a total 146 billion kroner ($22 billion) next year, down from 195 billion kroner seen previously.

These were some of the highlights in the forecast documents published on Friday:

• The government sees 2021 private consumption rising 4.3%, saw 3.2% in August.
• Sees 2022 private consumption rising 3.8%, saw 4.1%
• Sees 2021 house prices rising 10.4%, saw 13.1%
• Sees 2022 house prices rising 3.3%, saw 3.8%
• Sees 2021 fiscal balance at minus 0.3% of GDP, saw minus 0.5%
• Sees 2022 fiscal balance at minus 0.2% of GDP, unchanged
• Sees 2021 public debt at 37.4% of GDP, saw 40%
• Sees 2022 public debt at 34.1% of GDP, saw 38.5%

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