The Danish economy has been in a recovery for some time already. Combined with the fall in oil prices and the weakening of the effective krone rate, the very low level of interest rates has an expansionary impact on the economy. Consequently, Danmarks Nationalbank expects growth to accelerate. GDP growth is forecast at 2 per cent this year and expected to remain at that level in 2016 and 2017.
This appears from the Monetary Review, 1st Quarter 2015, which Danmarks Nationalbank has published today.
If this stable economic growth is to continue, the easing introduced to cushion the effects of the crisis must be rolled back so that the structural balance is brought close to equilibrium over the next couple of years. Recent years' structural reforms should result in a steady increase of the labour force in order to ensure a sustainable development in the labour market and in wage formation.
Overall, consumer prices have not risen over the last year. This is primarily attributable to the pronounced fall in oil prices since the summer, which also boosts household purchasing power. There is no risk of deflation as core inflation remains positive and wage growth is accelerating slightly.
On the other hand, there is reason to keep an eye on the housing market as there is a risk that a prolonged period of very low interest rates could trigger an unhealthy development with self-reinforcing price increases for owner-occupied housing. This highlights the need for automatic stabilisers in the housing market.
DANMARKS NATIONALBANK'S PROJECTION
Danmarks Nationalbank forecasts GDP growth at 2.0 per cent in 2015 and 2.1 per cent in 2016. In 2017, which is included in the projection for the first time, growth is forecast at 1.8 per cent. Compared with the December projection, the forecast has been adjusted upwards, by 0.3 percentage point for 2015 and by 0.1 percentage point for 2016.
The annual increase in the Harmonised Index of Consumer Prices, HICP, is forecast at 0.5 per cent in 2015, 1.8 per cent in 2016 and 1.9 per cent in 2017. Compared with the December projection, the forecast is 0.3 percentage point lower for 2015 and 0.1 percentage point higher for 2016. The forecast for 2017 is included for the first time.
Enquiries can be directed to Karsten Biltoft on tel. +45 3363 6021.