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Denmark's government cut its forecast for economic growth this year and next as a labor shortage crimps production while falling house prices weigh on demand.

The economy will grow 1.2 percent this year and 0.7 percent in 2009, the finance ministry in Copenhagen said in a statement published on its Web site today. That compares with a February estimate for 2008 growth of 1.4 percent and 1 percent in 2009.

The $340 billion economy faces a deepening labor shortage, accelerating inflation and a widening current account deficit as it comes out of the fastest growth in more than a decade. A lack of qualified workers across most industries will crimp production, while wage growth accelerates, adding to inflationary pressures from record oil and food costs.

“This is an economy facing lots of challenges,'' said Steen Bocian, head of global economic research at Danske Bank A/S in Copenhagen. “The picture is one of a quite marked retreat in the economic growth outlook.''

Growth will also slow as a decline in house prices eats into confidence and household demand. Consumer spending makes up half the economy. Household spending will grow 2.6 percent this year and 1.3 percent in 2009, the ministry said. That compares with 2.5 percent growth in 2007.

“The Danish economy can't continue to expand at the same high speed as we've managed in recent years,'' Finance Minister Lars Loekke Rasmussen said in the statement no fax payday loans.

Higher Inflation

Households' total asset values will decline 4 percent this year after growing 3 percent in 2007, the finance ministry estimates. The drop will be led by a 2 percent decline in the value of housing.

“In 2008 and 2009, it's estimated that households' assets will show a decline in real terms, mainly as a consequence of a retreat in nominal housing prices,'' the ministry said.

Combined central, regional and municipal government spending will grow 1.3 percent this year and 1.2 percent in 2009, exceeding the Liberal-Conservative government's self-imposed expenditure growth ceiling of 1 percent. The government hasn't stuck to its spending target since 2005.

Inflation will accelerate to 3.3 percent this year from 1.7 percent in 2007, the ministry also said today.

The central bank can't use policy to stabilize prices or demand as its sole mandate is to keep the krone in a 2.25 percent band of the euro. The bank last raised the key lending rate on May 16, independently of the European Central Bank, citing a weakened krone sparked by the global liquidity crisis.

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