COPENHAGEN: Denmark’s government said on Monday it expects actual economic output to exceed sustainable potential output next year and that policies should address the risk of overheating. The government expects the output gap at plus 0.4 percent next year, compared with a previous forecast of zero, a government paper showed. The gap is expected at plus 0.7 percent in 2019, it said. The output gap is expanding as the economy recovers while companies face labor shortages.
The government does not want to loosen fiscal policy and has proposed a 2018 budget that would slow economic growth slightly. But a key ally, the Danish People’s Party, is pushing for increased welfare spending that could increase growth. The country’s central bank has warned of risks of overheating if the government gives in to calls for more public spending . The government on Monday slightly increased its forecast for economic growth, driven by private consumption, investments and exports. It now expects the economy to grow 2 percent this year, 1.9 percent next year and 1.7 percent in 2019 .
“This will mark the first strong cyclical recovery for the Danish economy since the mid 2000s,” said Helge Pedersen, the chief economist at Nordea. “The big challenge for the economic policy will be to keep the upswing going and avoid an overheating of the economy,” he said.
The proposed budget for 2018 indicates a neutral fiscal policy compared with this year.
