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Towards a new era in the Danish economy

Publiceret 12-12-2016

The prolonged period of recovery following the global financial crisis is coming to an end. The Danish economy has been growing every year since 2009, unemployment is low and employment is booming. The Danish economy is heading towards a new era. This is apparent from the Economic Survey, December 2016, presented by the Minister for Economic Affairs and the Interior Simon Emil Ammitzbøll.

The recovery of the Danish economy continues. GDP growth is expected to increase from almost 1 per cent in 2016 to 1.5 per cent in 2017 and 1.7 per cent in 2018. In line with economic growth, employment is expected to increase by a further 50,000 persons in the course of 2017 and 2018 after a marked increase in the order of 45,000 persons this year.

With growth in production and a solid increase in employment in recent years, the Danish economy is approaching a situation of potential capacity constraints. Unemployment is already at the lowest level in 40 years, except for the years 2007 and 2008 when bottlenecks in the labour market were widespread, and unemployment is expected to decline further.

Already now, there are signs of emerging capacity constraints, which could slow economic growth down later in the cycle. The recovery and employment growth could, however, be extended if new initiatives to increase labour supply and strengthen growth potential are implemented.

The Minister for Economic Affairs and the Interior Simon Emil Ammitzbøll says:

“The government’s forecast for the Danish economy shows that we are heading towards a new era. Things are moving forward, but it requires that we adjust. The government has set itself the objective to pursue policies that increase employment significantly and increase prosperity in Denmark. We will present proposals, which lower taxes on labour, increase the incentive to find a job, and make it easier to do business in Denmark. This will create the foundation for a good development. I’m already looking forward to present the next survey of the Danish economy in May 2017.”

- Simon Emil Ammitzbøll

The economic improvement and a tighter labour market are calling for an appropriate economic policy. To support a sustainable recovery which does not lead to imbalances, there is a need of initiatives that will help reducing capacity pressure on capacity and bringing public finances back towards balance. This should also be seen in light of a still very accommodative monetary policy.

The Minister of Finance Kristian Jensen says:

“If we seriously want to have sustainable growth, we must mobilize all resources. It is not acceptable that the recovery risks coming to a halt after a short time, because companies will be short of labour, and also because public spending still make up a large share of the economy. To support that the recovery does not lead to imbalances, there is a need in the coming years for both increasing the capacity of the economy through new reforms and at the same time keeping public spending on a tight leash. Otherwise we risk that the recovery is slowing down too early. Therefore, we must succeed in finding more hands for the labour market.”

- Minister of Finance Kristian Jensen

 

Further information

Head of Division Lone Ank, phone +45 25 43 98 61

Press Secretary Sigga Nolsøe, phone +45 22 26 95 07

 

Facts: Highlights from the Economic Survey, December 2016

 

  • The recovery of the Danish economy is continuing in 2016, and GDP growth is expected to increase from almost 1 per cent this year to respectively 1.5 per cent and 1.7 per cent in 2017 and 2018.

 

  • In the coming years, growth is to a significant extent driven by private consumption. The foundation is still strong job growth, which together with a very low inflation leads to a significant increase in household real incomes.

 

  • Private consumption is expected to grow slightly faster than incomes over the next two years. Private consumption is expected to grow up to 2 per cent annually in 2016-2018.

 

  • The international trade seems to grow at a slower pace than was the case before the financial crisis. This dampens export growth prospects. Consequently, a relatively modest growth in total exports of around ½ per cent this year rising to 2½-2¾ per cent in 2017-2018 is expected.

 

  • Increased demand is expected to increase the need of companies for both more labour and capital. Employment is already rising rapidly, and by 2018 100,000 more persons are expected to be in employment compared to 2015.

 

  • With increasing production and employment the output gap is expected to gradually narrow. The markedly increase in employment has already resulted in some sectors reporting increasing shortage of labour. As there are fewer available hands, the risk bottlenecks is arising, and companies may have to turn down orders because of labour shortage

 

  • Wage growth is – despite increasing capacity utilization – expected to remain relatively low by historical standards at around 2½-2¾ per cent. This is partly due to a moderate increase in productivity, but also because a low rate of inflation is dampening wage pressures in the Danish economy.

 

  • The economic recovery improves the public budget balance, and the deficit is expected to be well away from the 3 per cent limit in the EU Stability and Growth Pact. The structural deficit is expected to be 0.3 per cent of GDP in 2016, while a structural deficit of 0.5 per cent of GDP in 2017 is expected.