Denmark should tighten fiscal policy

Denmark's public sector deficit proved to be smaller than expected last year, but the positive surprise should not tempt the government to diverge from a plan to gradually tighten fiscal policy, economists said on Monday. Excluding one-offs, the public sector deficit fell to 18.6 billion crowns ($2.7 bln) in 2016 from 33.6 billion the year before, the statistics office said; far below the government's December forecast of 29.3 billion.
The decrease was primarily due to the fact that government spending increased less than initially planned, which has also dented economic growth, Danske Bank's chief economist Las Olsen wrote in a research note. The new figures mean that the Danish government could afford to stimulate the economy by increasing public investments or cut taxes, but that would not necessarily be a good idea, he added. "Right now there's no need for extra speed in the economy as employment is already increasing month for month, and the unemployment is no longer high," Olsen said. "More speed would probably mean a hard slowdown soon". Olsen's comments were echoed by Nykredit's chief economist Tore Stramer who said the government should stick to its planned gradual tightening of fiscal policy over the coming years.