COPENHAGEN, Feb 19: The Danish economy has performed well over the past decade thanks to key reforms but the government must now prevent it from overheating, the OECD warned on Tuesday in a report on the Scandinavian country.

“The Danish economy has been performing well over the past decade and combines a relatively high level of GDP (gross domestic product) per capita with a narrow income distribution,” the Organisation for Economic Cooperation and Development said.“Strong growth in recent years has brought the economy to its capacity constraints,” it said, adding: “Avoiding overheating is an urgent challenge.”

Unemployment reached a 30-year low in mid-2006 and it has continued to fall since then, reaching 3.4 per cent in 2007.

Local wage agreements in the private sector showed some acceleration, “and with yet higher demands in the public sector, a general wage spiral could be set in motion.”

An agreement reached on Monday between unions and the government paved the way for 13 per cent wage increases over three years for some 170,000 public servants.

“Excessive public sector wage growth and continued spending slippages in municipalities and regional authorities should be avoided,” the OECD warned.

It called on the government to “ensure that the sound fiscal position is sustained.”

The report also urged Denmark to “help marginal groups secure a foothold in the labour market,” noting that one out of five working-age adults live off of passive income benefits, which was “substantially more than in other countries.”

“With one of the highest tax-to-GDP ratios in the OECD, Denmark should constantly consider how to refine the tax structure to reduce distortions,” it said.—AFP