Prospects for the Danish economy are good

Publiceret 08-06-2017

The Danish economy is in a period of stable growth and rising employment. This is largely due to previous reforms that have provided the basis for a sustainable development. Solid growth is expected in both 2017 and 2018, and employment will continue to grow. New reforms and growth initiatives could extend and strengthen the recovery. This is apparent from the Economic Survey, May 2017, presented by minister for economic affairs and the interior, Simon Emil Ammitzbøll.

The outlook for the Danish economy is generally good. This should be seen in connection with recent years' reforms, which will continue to increase labor supply in the coming years, and the fact that a number of imbalances in the Danish economy have been corrected. GDP growth is expected at 1.7 per cent in both 2017 and 2018. Over the two years, employment is expected to grow by almost 60,000 persons after increasing by almost 50,000 persons last year alone. Unemployment is estimated to remain close to the structural level of approximately 110,000 persons.

Minister for economic affairs and the interior Simon Emil Ammitzbøll says:

“The Danish economy is on the right track. The current recovery is broadly based. Export market performance of Danish companies is strong, and investments have flourished. Danish families have increased consumer spending, and employment is rising. I want to use the good starting point to implement reforms and initiatives that will bring even more persons into the work force and create the foundation for future high-productivity jobs. The government will, among other things, strengthen the incentive to provide an extra work effort and make it more attractive to do business in Denmark. In this way, Danish families will experience more opportunities and more persons will be brought closer to the labour market – including those who have not had the chance so far. We will create the foundation growth and development in Denmark towards 2025. We want a policy of opportunities, not of necessities. That will bring us forward.”

- Simon Emil Ammitzbøll

Minister of finance Kristian Jensen says:

”I am pleased to see that the upswing in the Danish economy is picking up speed and employment continues to rise. But with the strong increase in labour demand we are also seeing the first signs of labour shortages. Going forward it must therefore be a priority to ensure increased labour supply to match the demand from Danish companies so the upswing does not lose its momentum. With the Government’s ambitious 2025-plan we point to specific reform areas to increase employment. With the plan we continue the Danish reform strategy that form the basis for the current high level of employment and healthy upturn. Together with new reforms we will pursue a responsible economic policy which is aligned with the business cycle and which supports a lasting upturn.”

- Kristian Jensen

Increasing employment in a situation where unemployment is already low poses a risk of excessive labour market pressure. At the same time, growth prospects are hampered by a slow development in productivity. If new initiatives are taken that increase labour supply and strengthen productivity in the coming years, this will expand and strengthen recovery.

Facts: Main points from the Economic Survey, May 2017

  • The Danish economy grew throughout 2016 where GDP rose by 1.3 per cent for the year as a whole. It was the seventh consecutive year of economic progress. GDP-growth is estimated at 1.7 per cent in both 2017 and 2018. The rate of growth is thus expected to be stable, approximately in line with growth rates in the last three years.
  • In a historical perspective, growth is somewhat subdued. For example, GDP grew by 2.4 per cent a year in the period 1980-2000. The lower rate of growth can mainly be attributed to a more subdued development in productivity.
  • The Danish economy is in a situation with almost neutral capacity utilization, i.e. a practically closed output gap. The output gap expresses how far the economy is from a situation where the available resources are utilized in a way that is consistent with stable wage and price developments.
  • Higher incomes have significantly strengthened the basis for consumption and housing investments. Private consumption has grown relatively strongly in recent years, and housing construction has picked up, supported by rising house prices. This development is expected to continue.
  • Growth in business investments is expected to continue in 2017 and 2018. Investments are primarily driven by increasing capacity utilization in the private sector as a result of the global economic upturn and further growth in private consumption domestically.
  • After subdued export growth in recent years, exports are expected to pick up in 2017 and 2018. The better export prospects are mainly due to an acceleration of growth in several of Denmark’s main trading partners.
  • Almost 50,000 more persons found a job in 2016, and in line with continued growth in the Danish economy, employment is expected to increase further. The increase is possible due to an increasing structural workforce, as the employment gap already is estimated to be approximately closed in 2017. The unemployment rate has also declined and was at the lowest level for 40 years in 2016, except for the years 2007 and 2008, where overheating had brought the unemployment rate down to a very low level.
  • A number of indicators of capacity pressure in the labour market have risen over the past year. Labour market pressure is assessed to have increased, although there are still no signs of widespread bottlenecks. Several companies, especially in the construction sector, report of a shortage of labor as a production constraint.
  • The expected increase in employment and gradually increasing labour market pressure give rise to moderately increasing price and wage growth rates, but widespread wage pressure is not expected, which usually occurs only relatively late in a course of overheating.
  • In 2017 and 2018, the government deficit is estimated to be respectively 1½ per cent of GDP and ¾ per cent of GDP, and the structural balance is estimated to improve from -0.5 per cent of GDP in 2017 to -0.3 per cent in 2018. The deficits thus remain within the limits of the Budget Law and in relation to EU rules.

Further information

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