The International Monetary Fund urged Denmark on Thursday to slow its economic growth for next year by issuing higher interest rates.

In its annual report, the IMF said Denmark's GDP growth should decrease from 2.75 percent this year to 2.25 percent next year.

It was noted that the sharp rise in Danish house prices needs to be closely monitored by the government. The IMF suggested that favorable tax treatments along with the introduction of new financial instruments are likely to have contributed to the rise.

Directors expressed concern that an upward revision in real public expenditure growth targets, in line with the new welfare proposals, would add to the demand pressures in the short run,” the Fund reported.

The IMF noted that inflation remains contained, but is catching up with rates in the euro area. While unemployment has dropped to its lowest level in 30 years in June this year, reaching 4.5 percent, the number of people in labor market programs remains high.