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Copenhagen, March 16 – The central bank of Denmark has warned of the impact of high wage increases on curbing inflation, calling the government to get ready to tighten fiscal policy.
“There is no room to increase the pressure in the Danish economy. It may be necessary to tighten fiscal policy if the risk of an independent Danish wage-price spiral rises further,” Danmarks Nationalbank’s Governor Christian Kettel Thomsen said in a statement about the bank’s new analysis on the Danish economy.
Despite efforts to lower inflation in both Denmark and the entire eurozone, Thomsen believed both were expected to see significant wage growth, reports Xinhua news agency.
“Sustained wage increases of this size are not compatible with low and stable inflation in the long term,” the Governor added.
Though warning of possible risks, the analysis expects the inflation to fall to 4 per cent in 2023, much lower than the 8.5 per cent in 2022.
“The fall is primarily attributed to falling energy prices,” says the analysis.
In addition, the analysis predicted that the country’s gross domestic product is expected to grow by 0.9 per cent in 2023 and 1.2 per cent in 2024, giving it a positive outlook.