Denmark risks having to save some DKK 34 billion and not just DKK 13 billion in order to achieve zero growth in public spending, according to central bank calculations.

If public spending develops as it has done over the past 10 years, government projections that zero growth in public spending from 2011-2013 will only require DKK 13 billion in savings are too optimistic.

The new figures from the central bank suggest the figure is more likely to be DKK 34 billion.

Nationalbanken’s economists have studied the actual development of public consumption over the past 10 years, and in general, the government has been unable to reach its own targets. Public consumption has grown apace.

“If the target of zero growth in public consumption is to be reached, DKK 34 billion is a better and conservative estimate of what is needed. It will require political muscle to reach the zero growth target. It is a very, very ambitious target,” says central bank Governor Nils Bernstein.

Bernstein added that if the government is unable to realise its economic recovery plan to include zero growth in public consumption, it will be difficult to maintain a tax freeze.

Less unemployment
Bernstein did, however, have some good news – the central bank estimates that unemployment will not increase as drastically this year as previously forecast. Nationalbanken expects 152,000 unemployed this year rather than its previous estimate of 163,000.

Despite the improved forecast for 2010, the central bank expects unemployment to reach 168,000 in 2011 but with a small drop to 154,000 in 2012.