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Economic developments
Like all other observers of economic developments in Denmark, the Chairmanship has revised its growth forecast significantly downwards in the light of the surprisingly strong global economic recession since the summer of 2008. Denmark's gross domestic product is estimated to fall by 2.9 per cent in 2009, and it will take some years before output has been restored to the 2007 level. Unemployment is rising appreciably, and the rate of wage increase is expected to decline to just over 2 per cent by the end of the forecast period.
From an overall perspective, Danmarks Nationalbank shares the view of the Chairmanship on economic developments in the coming years, but we do differ in a few respects. The deviations are, however, minor and by no means match the considerable uncertainty linked to all forecasts at the moment.
Danmarks Nationalbank agrees with the Chairmanship that no further fiscal relaxation is required in 2009. Fiscal policy has already been eased substantially. As regards fiscal policy in 2010 and 2011, opinions differ. The Chairmanship recommends easing fiscal policy by a further 15 billion kroner in both years. Danmarks Nationalbank does not share this view. True, it is emphasised on p. 122 that the money spent on further fiscal relaxation is to be recouped later.
However, experience from the boom in 2004-07 shows that it is practically impossible to conduct counter-cyclical fiscal policy in good times. As such, the scope for further fiscal relaxation is very limited. It would mean seeking to stabilise average unemployment around a level below the structural level, and consequently wage increases in Denmark would persistently tend to outpace foreign wage increases. Although the forecast predicts that the rate of wage increase will decline, the long-standing tendency for competitiveness to deteriorate continues. This is unsustainable, and fiscal relaxation will only exacerbate the problem.
Moreover, it has proved to be very difficult to implement the necessary structural policy improvements to ensure sustainable government finances.
Against that background, there is no scope for easing fiscal policy as suggested by the Chairmanship.
Denmark and the euro
Danmarks Nationalbank shares the view of the Chairmanship that Danish participation in the euro would give us a modest economic net gain. The currency unrest during the financial crisis in the autumn showed that participation in the euro provides shelter against a storm.
It is and has been the general view of Danmarks Nationalbank that Denmark's adoption of the euro would be a natural extension of our fixed-exchange-rate policy and would not involve major economic upheavals.
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