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Wise Men pessimistic

The Economic Council sees the risk of the economy continuing to tread water.

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The prospects for economic growth in Denmark next year are uncertain, according to the government’s Economic Council, which presented its autumn report today.

In fact, the report suggests that Denmark may still be treading water in 2014 – among other reasons due to sluggish economic recovery in Europe.

And although a fiscal policy injection could benefit the economy in 2013, the council’s Wise Men are advising against the idea.

“The sluggish economic development suggests there could be basis for a fiscal policy relaxation in 2013, but that could give us problems with EU requirements and we advise against it,” says Economic Council Chairman Prof. Hans Jørgen Whitta-Jacobsen of Copenhagen University.

“Denmark has already gone far in its creative stimulation, and the limit has probably been reached,” he adds.

The council report suggests that economic activity will continue to be below normal levels after 2014.

“There is much to indicate that fiscal policy stimulation should be held back until 2014 and onwards when there may be a need to stimulate the economy,” Whitta-Jacobsen says.

The Wise Men see growth in Denmark at 0.2 per cent – a full percentage point below their forecast six months ago. Next year, the council says its uncertain forecast is growth at 1.6 per cent.

Whitta-Jacobsen’s reference to the European Union refers to the current centre-left government’s plans for fiscal policy measures in order to be able to live up to the EU’s convergence criteria of a public deficit of under three per cent.

The Economic Council report also forecast unemployment this year at 165,000 increasing by 9,000 next year to 174,000.

Addressing the politically controversial issue of unemployment benefits, the Economic Council suggests a flexible, rule-based unemployment benefit system, which follows market conditions.

“We are suggesting a market-dependent unemployment benefit system with longer periods of payment in times of low economic activity than when activity is high,” Whitta-Jacobsen says.

The Economic Council says that the length of time during which unemployment benefit is paid should be determined by a set of clear rules, and not be left to the whim of politicians.

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