Updated convergence programme of Denmark, 2007-2010 - Main contents

EN

Official Journal of the European Union

C 74/15

On 4 March 2008, the Council examined the updated convergence programme of Denmark, which covers the period 2007 to 2010 (2) and gives further indications of developments towards 2015.

In recent years, the Danish economy has been characterised by strong real GDP growth, sizeable employment gains, high capacity utilisation, low inflation and a stable exchange rate within the ERM II.

Over the past year, however, capacity constraints have started to inhibit economic activity, and signs of increasing price and wage inflation have appeared. While the external balance still shows a surplus, the implication of mounting cost pressures and labour shortages for competitiveness is of rising concern. Public finances remain strong with sustained general government surpluses and a continued reduction of debt. The key challenge for fiscal policy at the current juncture is to maintain a prudent fiscal stance so as to avoid contributing to further labour market pressure. Ensuring that spending limits are adhered to represents an additional challenge, particularly in times of buoyant revenue, but is nevertheless important given the government's ambitions for ensuring fiscal sustainability.

The programme envisages that the Danish economy is at the peak of its business cycle and is now facing a period of more moderate growth. Therefore, real GDP growth is expected to slow down from 2 % in 2007 to 1 % on average over the rest of the programme period. Assessed against currently available information (3), this scenario appears to be based on plausible growth assumptions in 2008 and cautious assumptions thereafter due to the underlying assumption in the update of a large positive output gap (calculated using a national methodology) (4) closing towards 2011. The programme's projections for wage and price inflation appear to be on the low side, particularly for 2009, in view of domestic wage pressures as well as global trends. However, price stability should be preserved throughout the programme period.

For 2007, the general government surplus is estimated at 4,0 % of GDP in the Commission services' autumn 2007 forecast, against a target of 2,8 % of GDP set in the previous update of the convergence programme. This over-performance reflects a significant positive base effect from 2006 due to stronger-than-expected employment growth and higher revenue from oil- and gas- related activities in the North Sea than anticipated.

The current programme anticipates a surplus at 3,8 % of GDP, but in light of more recent information (5), revenue is likely to be higher than expected by 0,5 percentage point of GDP, and thus the surplus is likely to be revised upwards accordingly (to about 4,5 % of GDP).

Guided by the general objective of ensuring fiscal sustainability, the main goal of the budgetary strategy is to maintain high, although rapidly declining surpluses (from 3,8 % of GDP in 2007 to 3,0 % in 2008 and further to 1,2 % in 2010 (6)) against the background of weakening cyclical conditions. The medium-term objective (MTO) for the budgetary position is revised upwards (7) by 0,25 percentage point of GDP to a structural surplus (i.e. cyclically...