COPENHAGEN: Denmark’s central bank raised its growth forecasts on Wednesday for this year and next, flagging a risk of overheating as it urged the government not to stimulate the economy further. The central bank now expects the economy to grow 2.3 percent this year, up from a forecast in March of 1.6 percent. For next year it hiked its prediction to 1.8 percent from 1.6 percent. “In the coming years, when the Danish economy will be in a boom, fiscal policy should not stimulate demand further, but rather contribute to ensuring that growth does not overstretch capacity,” bank governor Lars Rohde said in a statement.
The government proposed a fiscal policy two weeks ago that it hopes will keep the economy from expanding too fast, but its parliamentary ally, the Danish People’s Party, is pushing for increased welfare spending that could cause growth to accelerate. “We have previously seen that the economy can overheat vigorously and suddenly when it is booming. The government should be prepared to step in and tighten fiscal policy with a view to dampening growth in demand,” Rohde said. The government said the draft budget it offered for 2018 would slow economic growth by 0.05 percentage points. But the Danish People’s Party – whose cooperation the government needs to pass laws – wants more spending, not less. The government has said it expects the economy to grow by 2.0 percent this year and 1.8 percent next. Gross domestic product rose 2.7 percent year on year in the second quarter of 2017.
