Denmark's finance ministry on Tuesday raised its forecasts for the public budget surplus in 2007 and 2008, but said constrained fiscal policies were necessary to avoid large deficits in the future. The government's latest economic forecast for the 2007 public budget surplus was 71.0 billion crowns ($12.82 billion), up from 56.0 billion in December last year.
The surplus corresponds to 4.2 percent of gross domestic product (GDP), against the previous forecast of 3.3 percent and an estimated 4.2 percent in 2006, the finance ministry said in a statement.
Economists have repeatedly warned that the economy of Denmark, which is in the European Union but outside the euro zone, has been running too fast with red-hot job and housing markets stoking consumption.
Denmark's Finance Minister Thor Pedersen said high surpluses would fall in coming years as demographic shifts would mean fewer Danes working and lower income from North Sea oil fields took their toll.
The 2008 surplus is seen at 59.3 billion crowns against a December forecast of 56.2 billion. "It's worth highlighting that there are more similarities than differences in our views of the Danish economy," said Danske Bank Chief Economist Steen Bocian.
"Everything points to a soft landing, which isn't so bad when starting from a point of record-low unemployment," he said. Pedersen underlined that Denmark was at the top of an economic cycle that has boosted incomes and wealth.
"This demands a responsible fiscal policy, or the consequences can be weakened competitiveness and an extended setback with high unemployment rates, and that's the last thing we want," he said.
EMU debt is expected to fall from just above 30 percent of GDP in 2006 to 21 percent in 2008, the ministry said, while net debt, which includes government assets such as Denmark's stake in airline SAS could be erased in 2008.
The finance ministry said it expected its fiscal policies to have a neutral effect on the economy this year with further expected interest rate hikes cooling activity into 2008.
The ministry said it saw growth in hourly wages of 4.6 percent this year and next with inflation measured by the EU-harmonised consumer price index (HICP) rising from 1.9 percent this year to 2.3 percent in 2008. Last week, the Organisation for Economic Cooperation and Development (OECD) warned against any further fiscal stimulus in Denmark, saying the country could face a recession if wage rises hit competitiveness.
Danske Bank said it expected wage rises of just under 4 percent this year. The finance ministry kept its forecast for GDP growth this year unchanged at 2.2 percent and next year's forecast remained at 1.2 percent. Last year GDP powered ahead at 3.2 percent.
"We have based our evaluation on that growth in consumption and investments will subside significantly approaching 2008, affected by rising interest rates and slowing growth in household's disposable incomes and a clear slowdown in the housing market," the ministry said.
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