Falling oil prices and the ongoing deterioration in the economy mean that we now expect a budget deficit next year. The last budget deficit was 11 years ago, while between 2005 and 2007 there were sizeable surpluses of around 5% of GDP. The economy's sensitivity to the business cycle highlights the importance of a tight fiscal policy during the good times so that there is significant scope to adjust when the business cycle deteriorates.
The finance ministry reviewed the government's coffers about a month ago, revising down the expected budget surplus in 2009 from DKK 56bn (3.0% of GDP) to DKK 7bn (0.4% of GDP). Since then, oil prices have fallen further and the prospects for growth have worsened. Taking these factors into account, public finances look set to slip into the red next year, with a deficit of around DKK 9bn, or 0.5% of GDP.
