State of the Union. Report on Danish Economy

We finally got the long awaited report from the so called "wise men". The report to the Economic Council contains economic analyses and policy statements on economic policy.

I will shorten the 300+ pages into a small summery.

growth rates are expected to be negative and unemployment expected to increase significantly despite introduction of an array of monetary and fiscal measures. GDP growth in 2009 is expected to fall by another 3 per cent, which would be the biggest fall since the 1950’ies. Unemployment is expected to rise up from a historic low of around 47,000 persons (1.6 per cent of the workforce) in the middle of 2008 to 165,000 persons in 2011.

In total, the general government budget balance is reduced with approximately DKK 115 billions over the period 2008 to 2010. The public deficit will thus be around 3 per cent of GDP in 2010.

It has been decided to release the savings from the Special Pensions Savings (SP), which is a small gov- ernment controlled pension fund with mandatory payments in the period 1998 to 2003. it is assumed that a quarter of the savings are converted to private consumption evenly divided among 2009 and 2010 thus increasing GDP growth in 2009 by ¼ percentage point.

The new tax reform which primarily transfers taxation from labour income to VAT and other taxes is underfinanced in the short run, thus stimulating GDP growth.

The report want to boost incentive not only to more public sector investments but also subsidize private investments.

Overall, monetary policy has worked appropriately and inflation has been stabilised at
a level around 2 percent.

To sum the report it states that Denmark is severely hit by the financial crisis and we must prepare ourselves on some lean year with a pressured economy and an upturn will wait until 2011.