COPENHAGAN: Denmark’s economy is struggling for momentum, official data showed Wednesday, highlighting the challenge facing the government as it weighs tax cuts against public sector investments.
Denmark’s statistics agency said economic output increased 0.5% on the quarter and 0.4% on the year in the second quarter of 2016, largely in line with analysts’ forecasts in a Wall Street Journal poll. Public sector consumption and exports helped lift growth while total domestic demand fell, the agency said. Denmark’s economy has been sluggish since the financial crisis of 2008, when a property bubble burst and hit many households’ spending power. Successive center-right and center-left governments have struggled for the right economic mix.
The export-dependent country, home to corporate giants like shipping company Maersk and drugs maker Novo Nordisk, has also been hit by ebbing demand in its main European market. Recent government forecasts peg growth expectations this year at 0.9% and 1.5% next year, lower than previously thought.
The country’s high tax level on earned income has come into focus as a possible handbrake on growth and a fierce debate is raging about whether a cut to the top rate of tax could help boost the economy. The country is led by the center-right Liberal Party of Prime Minister Lars Lokke Rasmussen, who governs with the support of the Liberal Alliance party and the anti-immigration Danish People’s Party.
The Liberal Alliance has threatened to withdraw its support in parliament if the top tax rate isn’t cut, while the Danish People’s Part has said it isn’t prioritizing such a move. It wants to see further investment in Denmark’s welfare state funded by savings made by cutting immigration numbers. Mr. Rasmussen is in the process of rallying support for a 10-year economic plan which seeks to meet his allies’ conflicting demands.
Analysts say that if he fails to strike the right balance early elections could be necessary; Mr. Rasmussen is only one year into a four-year term. At a press conference Tuesday, Mr. Rasmussen expressed fears his country was falling behind neighboring Sweden and Germany and that future generations may not inherit Denmark’s current high standard of living.
