Photographer: Carsten Snejbjerg/Bloomberg

Denmark Raises Economic Outlook for 2018 as Tax Cuts Planned

Updated on
  • Finance ministry raises borrowing requirement for next year
  • GDP is expected to expand 1.9% in 2018, as bottlenecks build

Denmark raised its outlook for economic growth next year as the center-right government plans tax cuts it says will help raise productivity.

Gross domestic product will expand 1.9 percent in 2018, compared with a previous estimate of 1.8 percent, according to documents seen by Bloomberg and due to be published by the economy ministry later on Monday. A forecast for 2 percent growth this year was kept.

The minority coalition of Prime Minister Lars Lokke Rasmussen is planning to push through tax cuts it says will encourage more people to join the workforce. The administration has yet to win the backing of the anti-immigration Danish People’s Party, on which it relies to stay in power. The group is trying to secure concessions designed to limit immigration in exchange for its support for the tax bill.

Though the forecast for GDP was raised, the economy will expand less than 2 percent next year in part as bottlenecks hit productivity, according to the ministry. “The expectation is that structural pressures will increase in the coming years, though these remain relatively moderate,” it said. By 2019, the economy is seen growing just 1.7 percent, according to the ministry.

Denmark’s seasonally adjusted unemployment rate is hovering at just above 3 percent, with most economic policy now aimed at increasing the labor supply.

“With every upswing, there’s a risk that the development moves too fast,” the ministry said. In previous instances of overheating, the growth cycle came to “an abrupt end,” it said. That means that the government needs to monitor the current development very closely, “because overheating and imbalances can build quickly.”

Separately , the government said it will raise the borrowing need for next year. The krone-denominated requirement will rise to 127 billion kroner ($20 billion) from an August estimate of 120 billion kroner, the finance ministry said on Sunday. It cut its forecast for domestic borrowing this year to 88 billion kroner from 99 billion kroner.

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