The prediction on house prices is included in the National Bank’s latest review of the Danish economy’s prospects.
According to the central bank, house prices will fall by an average of 5.6 percent in 2023. They will continue to fall in 2024, dropping by 1.8 percent.
The latest prognosis represents a departure from the previous forecast issued by the national bank in March, in which it said it expected house prices to increase by 1.7 percent next year and by 2.1 percent in 2024.
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The economy is expected to have a tough year in 2023, according to the Nationalbanken forecast.
Inflation will be 4.3 percent, the central bank says, meaning another year of stinging price increases, albeit at a lower level of inflation than the 8.6 percent expected for the whole of 2022.
In 2024, inflation will return to a lower level of 1.7 percent.
Although GDP is predicted to be up by 2 percent at the end of this year, it will drop by 0.1 percent in 2023 before a 1.2 percent increase in 2024.
GDP predictions are also more pessimistic than they were in the March forecast, which expected a 2.1 growth in 2023.
“We can prepare ourselves for a period with weakened [economic] activity and a fall in employment,” the director of the National Bank, Lars Rohde, said in statements accompanying the release of the forecast.
“But it should be kept in mind that this is happening [in Denmark] at a conjuncture following the coronavirus pandemic, which caused a very pressed labour market,” he said.
“It is important to bring down the high inflation. That will require a significant tightening of financial policies and that will unfortunately be felt by everyone – companies and individuals,” he said.
“If we don’t get inflation under control, the costs for society will just get even bigger,” he said to DR.
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Projected high energy prices this winter are among causes for the expected continuation of inflation next year. Interest rates have also been pushed up.
Unemployment is predicted to increase slightly but will remain at a comparatively low level of 89,000 next year, Nationalbanken said.
Denmark’s unemployment rate is lower than in most other European countries, resulting in a labour shortage.
“The combination of great strain in the labour market, high demand and high inflation create the risk of a self-fulfilling wage-price spiral in Denmark. We therefore believe that fiscal policy must be tightened as soon as possible to significantly bring down demand. This should be by more than what the government proposes in the draft budget,” Rohde told DR.