Denmark cuts 2007 GDP, jobless rate forecasts

Aug 27, 2007 - Denmark's Finance Ministry cut its forecast for economic growth this year to 2.0 percent from a prediction in May of 2.2 percent, according to a copy of the 2008 draft budget obtained by Reuters on Monday.

According to the draft, the 2008 forecast for gross domestic product growth was raised to 1.3 percent from 1.2 percent.

The government is due to publish the draft budget on Tuesday at 0800 GMT.

Denmark's GDP rose 2.3 percent year-on-year in the first quarter of 2007, according to data from the National Statistic Office published last month. GDP grew 3.5 percent last year.

The Danish economy has been running strongly in the last few years, with red-hot job and housing markets stoking consumption.

But GDP, consumer confidence and housing price data this year have indicated that the economy has shifted to a lower gear and many economists now predict a soft landing and slower growth ahead.

In a comment in the draft, Finance Minister Thor Pedersen said that with high employment, large public budget and current account surpluses, and low inflation, the Danish economy was strong not only historically but relative to that of other countries.

"The current large surpluses will become smaller in the years to come because there will be fewer Danes working and more elderly Danes and tax revenue from the North Sea will fall," he said.

The 2007 public budget surplus was seen at 66.2 billion Danish crowns ($12.15 billion) or 3.9 percent of GDP, down from 71.0 billion forecast in May. The 2008 surplus is estimated at 55.3 billion crowns against 59.3 billion previously.

NORTH SEA OIL

Denmark, a European Union member but euro zone outsider, has had a government budget surplus since 1997, while public debt has declined considerably. This is mainly the result of larger tax revenues from earnings of funded pension schemes and rising North Sea oil and gas revenue.

The unemployment rate, already at more than 30-year lows of 3.5 percent of the work force in June, is seen falling to 3.3 percent on average this year and 3.1 percent next year.

Last week, Denmark's centre-right government unveiled 10 billion crowns of tax cuts for the employed starting next year to capitalise on a strong economy and help set the stage for a possible early election later this year.

In the draft, the Finance Ministry said that public consumption was estimated to rise 1.8 percent this year against the May prediction of 1.3 percent. Public consumption next year is seen rising 1.7 percent compared with 1.1 percent seen in May.