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4. DENMARK
Recovery is gaining pace
Economic growth is expected to increase in the coming years supported by robust private consumption
and expanding investment. Employment growth is forecast to remain strong and unemployment to fall
further. The general government deficit is projected to remain stable in 2017 before improving in 2018.
GDP growth is strengthening
Economic growth in Denmark is gradually gaining
pace. Real GDP growth is estimated to have
reached 1.0% in 2016 and is expected to accelerate
to 1.5% in 2017 and 1.8% in 2017. Private
consumption is forecast to remain the main growth
driver with increasing contributions from
investment. Net exports are expected to have a
weakly negative impact on real GDP growth over
the forecast horizon, due to higher growth in
imports than in exports.
6
Graph II.4.1: Denmark - Real GDP growth and its components
pps.
4
forecast
2
0
-2
-4
driver of growth, while public investment as a
share of GDP is forecast to continue declining
gradually. Business investment is forecast to gain
pace as the maturing recovery leads to higher
capacity utilisation.
Housing investment is projected to have expanded
at a particularly robust pace of 5.0% in 2016
supported by strongly rebounding house prices,
particularly in urban areas. Although house price
increases moderated somewhat over the course of
2016, housing investment is expected to further
accelerate to 5.7% in 2017 and 6.7% in 2018.
Following the financial crisis in 2008, public
investment was increased dynamically to support
the economy. In line with the government plans,
public investment is expected to expand
moderately in 2017 and to decline in 2018. Public
investment is thus expected to decline gradually as
a share of GDP, but remains significantly higher
than before the crisis.
-6
-8
Imports outpace exports
09
10
11
12
13
Private consumption
Investment
Net exports
14
15
16
17
18
Government consumption
Inventories
GDP (y-o-y%)
Consumption remains a steady growth engine
Strong employment growth, rising disposable
incomes and low interest rates have stoked strong
domestic demand in recent years and these factors
will continue to support robust private
consumption growth over the forecast horizon.
Private consumption is projected to expand by
around 2% annually between 2016 and 2018. The
household saving rate is expected to increase
slightly from already high levels, partly reflecting
high pension savings. Government consumption is
projected to keep expanding at a modest pace.
Private
growth
investment
is
boosting
economic
Investment is expected to grow by 3% in 2017 and
by 3.6% in 2018. Private investment is the main
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The current-account balance reached 9.2% of GDP
in 2015, one of the highest among EU countries.
The current-account surplus was revised up
following the revision of the national accounts in
November 2016. The high surplus partly reflects
an adjustment to the crisis, as business and housing
investment declined and savings increased. As
economic
growth
strengthens,
corporate
investment has increased and import growth is
forecast to outpace export growth in the coming
years. As a result, Denmark’s high surplus should
gradually decline.
Labour market remains strong
Employment growth remains robust, reaching
1.5% in 2016. It has been driven by private sector
employment, particularly in the service sector. The
employment rate is expected to have increased to
77% in 2016, slightly higher than the historical
average between 1995 and 2015 of 76.8%.
Employment is forecast to continue growing in the
Member States, Denmark
coming years due to the ongoing recovery of the
economy and increased labour supply due to a
series of pension and labour market reforms
implemented in recent years. Employment is
forecast to grow faster than the labour force,
reducing the unemployment rate from 6.2% in
2016 to 5.7% in 2018.
Gradually rising inflation
Following several years of subdued price growth,
inflation is expected to pick up in 2017 and 2018.
The increase in inflation reflects increasing energy
prices, higher capacity utilisation and higher wage
growth. HICP inflation was flat in 2016, and is
forecast to increase to 1.4% in 2017 and 1.6% in
2018.
Public debt to gradually decline as public
finances improve
The general government deficit is expected at
1.6% of GDP both in 2016 and 2017, before
improving to 0.9% of GDP in 2018, based on a
no-policy-change assumption. Public expenditure
as per cent of GDP is expected to decrease
gradually over the forecast horizon, partly due to
lower expenditures on unemployment benefits and
lower interest rate expenditures. Public
revenues are also expected to decline from 2016 to
2018, partly due to an expected decrease in
revenues from the pension yield tax, especially in
2017.
Similarly to previous years, risks to the headline
budget balance could come from the high volatility
of certain revenue items, such as revenues from oil
and gas extraction in the North Sea as well as
revenues from the pension yield tax.
The structural budget balance is projected to
remain around -½% of GDP in 2017 and to
improve to around 0% of GDP in 2018. In both
years, the structural budget balance is dragged
down by an expected lower level of pension yield
tax revenues.
The general government gross debt-to-GDP ratio is
projected to continue declining from a level of
38.3% of GDP in 2016 to just below 37% in 2018.
Table II.4.1:
Main features of country forecast - DENMARK
2015
bn DKK
GDP
Private Consumption
Public Consumption
Gross fixed capital formation
of which: equipment
Exports (goods and services)
Imports (goods and services)
GNI (GDP deflator)
Contribution to GDP growth:
Annual percentage change
Curr. prices
% GDP
97-12
2013
2014
2015
2016
2017
2018
2027.2
100.0
1.3
0.9
1.7
1.6
1.0
1.5
1.8
955.9
47.2
1.3
0.3
0.5
1.9
1.8
1.7
2.0
520.8
25.7
1.8
-0.1
1.2
0.6
1.3
0.7
0.8
389.9
19.2
1.7
2.7
3.5
2.5
3.7
3.0
3.6
118.3
5.8
1.8
10.6
2.7
-0.5
3.2
4.1
3.4
1119.5
55.2
4.2
1.6
3.6
1.8
0.2
2.7
3.3
969.5
47.8
5.0
1.5
3.6
1.3
1.3
3.4
3.9
2095.1
103.4
1.6
1.8
2.1
1.3
0.5
1.6
1.9
1.4
0.6
1.2
1.5
1.9
1.6
1.9
0.0
0.1
0.2
-0.3
-0.4
0.0
0.0
-0.1
0.2
0.3
0.4
-0.5
-0.2
-0.1
0.3
0.0
1.0
1.3
1.5
1.0
0.9
5.3
7.0
6.6
6.2
6.2
5.9
5.7
3.3
1.6
1.5
1.5
1.9
2.2
2.7
2.2
0.6
0.8
1.1
2.4
1.8
1.7
0.0
-0.3
0.1
0.2
2.4
0.4
-0.1
5.9
8.8
5.2
10.5
11.4
12.7
12.0
2.2
0.9
0.8
0.9
0.0
1.4
1.8
2.0
0.5
0.4
0.2
0.0
1.4
1.6
0.6
1.4
1.0
1.7
3.1
-0.3
0.3
3.0
3.7
3.5
4.2
4.8
4.8
4.8
3.6
7.8
8.9
9.2
7.3
7.0
7.0
3.7
7.7
8.7
8.8
6.9
6.7
6.7
0.7
-1.0
1.4
-1.3
-1.6
-1.6
-0.9
0.0
Domestic demand
Inventories
Net exports
Employment
Unemployment rate (a)
Compensation of employees / head
Unit labour costs whole economy
Real unit labour cost
Saving rate of households (b)
GDP deflator
Harmonised index of consumer prices
Terms of trade goods
Trade balance (goods) (c)
Current-account balance (c)
Net lending (+) or borrowing (-) vis-a-vis ROW (c)
General government balance (c)
Cyclically-adjusted budget balance (d)
Structural budget balance (d)
General government gross debt (c)
0.2
0.6
2.5
-0.5 -
-0.6
-0.6
-
-0.9
-0.6
-1.9 -
-0.6
-0.6
0.0
-
44.0
44.0
39.6
38.3
37.8
36.9
(a) as % of total labour force. (b) gross saving divided by adjusted gross disposable income. (c) as a % of GDP. (d) as a % of potential GDP.
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