As it expected 3.9% inflation this year, Denmark’s government suggested cutting public spending on Thursday.
“The most essential purpose of this finance measure is to guarantee that we combat inflation and don’t add gasoline to the fire,” Finance Minister Nicolai Wammen told reporters during a 2023 budget presentation.
A Thursday finance ministry study forecasts a 2.8% drop in inflation, which hit a 40-year high of 7.7% last year.
“Our budgetary approach this year will typically reduce economic activity. “Wammen” estimated the law would cost the Danish economy 0.9%.
It noted that the government predicts 0.2% economic growth this year, down from 0.8% in August. However, the central bank predicts 0.9% growth this year.
“The margin of possibilities for the economy is exceptionally vast at the moment, since we are possibly standing on the verge of a recession,” Arbejdernes Landsbank chief economist Jeppe Borre wrote.
Before the dismal growth prediction, Denmark had two years of robust economic growth with low unemployment and high industrial activity.
The central bank hiked its benchmark interest rate to 2.6% last week, the sixth rate hike since July last year, following other central banks worldwide tightening monetary policy to battle inflation.
In February, the government pledged 2.4 billion Danish crowns ($346.12 million) to help disadvantaged Danes cope with increasing prices.
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