IMF Executive Board Concludes 2024 Article IV Consultation with Denmark
IMF News, September 13, 2024
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- Published: September 13, 2024
Macroeconomic developments and outlook
- The Danish economy "has continued to expand at a robust pace, driven by an exceptional surge in the pharmaceutical." The rest of the economy has "remained relatively subdued, aside from the maritime and information and communication technology industries, reflecting sluggish demand."
- "With a decline in global energy prices and lackluster domestic demand, inflationary pressures have largely dissipated in recent months."
- Growth projections:
- "Output growth is projected to moderate from 2.5 percent in 2023 to 1.9 percent in 2024 and to 1.6 percent in 2025."
- "The growth of pharmaceutical and maritime exports will taper off, while that of the rest of the economy will be bolstered by a pickup in external demand, improved consumer purchasing power, and further easing of financial conditions."
- "The reopening of the Tyra natural gas will also contribute to growth in 2024 and 2025."
- Inflation path:
- "Inflation might temporarily edge up in the coming months due to the lagged effect of last year’s wage collective bargaining agreement before stabilizing at around 2 percent during the second half of 2025."
- Balance of risks:
- "The balance of risks to growth is skewed to the downside, with primary downside risks including a global slowdown, the possible escalation of the conflict in Gaza and Israel and Russia’s war in Ukraine, and deepening geoeconomic fragmentation."
Executive Board Assessment — main findings and priorities
- Directors "endorsed staff’s appraisal" and "agreed with the thrust of the staff appraisal."
- Commendations and overall assessment:
- "Commended Denmark’s remarkable resilience amidst multiple shocks, underpinned by sound policies, strong governance, and robust institutions."
- Noted "a positive outlook with more balanced growth and stabilizing inflation" but cautioned that risks are "tilted to the downside."
- Fiscal policy and public finances:
- "Commended Denmark’s robust public finances."
- Fiscal stance guidance: "fiscal policy should consider cyclical conditions and long‑term spending needs."
- Short-term caution: "fiscal policy should avoid adding to capacity pressures in the short term."
- Support for modest easing: "They supported the slight easing of the fiscal stance for 2025 and beyond to accommodate the increases in costs related to health, climate, and defense."
- To safeguard sustainability: "encouraged the authorities to closely monitor fiscal pressures and take additional adjustment measures if necessary."
- Financial sector and macroprudential policy:
- "While noting that the financial system remains sound, Directors recommended that the authorities continue to closely monitor risks, in particular, related to the commercial real estate sector."
- "Welcomed the recent tightening of macroprudential policies and suggested considering additional borrower‑based measures to address pockets of vulnerabilities."
- "Continued collaboration on the Nordic‑wide bank stress tests would also be important."
- "Encouraged the authorities to further strengthen AML/CFT and cybersecurity frameworks."
- Nonbank financial institutions and consumer protection:
- "Systemic risks arising from nonbank financial institutions (NBFIs) warrant closer monitoring and enhanced customer protection."
- "Encouraged the authorities to develop a systemic risk assessment encompassing banks and NBFIs and to finalize a supervisory order to enhance customer protection."
- Labor market, productivity, and trade:
- Emphasized "continued reform efforts to increase the labor supply, address skills mismatches, and better integrate migrants."
- "Encouraged by the authorities’ strong commitment to further enhance digitalization, innovation, and business dynamism to boost productivity growth."
- "Welcomed Denmark’s commitment to transparent free‑trade policies within the multilateral and rules‑based trading system."
- Climate policy:
- "Commended the authorities’ ambitious climate change mitigation targets and the agreement to reduce emissions in the agriculture sector."
- "Encouraged updating the estimates of the investment needs for climate adaptation."
Selected economic indicators (values as reported)
- Output
- Real GDP growth (%): 2023: 2.5; 2024: 1.9; 2025: 1.6
- Employment
- Unemployment rate (%): 2023: 2.8; 2024: 2.9; 2025: 3.0
- Prices
- Inflation (%, average): 2023: 3.4; 2024: 1.8; 2025: 2.2
- General Government Finances
- Revenue (% GDP): 2023: 50.1; 2024: 49.6; 2025: 48.8
- Expenditures (% GDP): 2023: 46.8; 2024: 47.8; 2025: 48.0
- Fiscal balance (% GDP): 2023: 3.3; 2024: 0.9; 2025: (not reported)
- Public debt (% GDP): 2023: 29.7; 2024: 28.2; 2025: 27.3
- Money and Credit
- Domestic credit growth (%): 2023: 3.2; 2024: …; 2025: (not reported)
- 3-month interbank interest rate (%): (not reported)
- 10-year government bond yield (%): 2023: 2.4
- Balance of Payments
- Current account (% GDP): 2023: 9.8; 2024: 9.0; 2025: 9.3
- International reserves (% change): 2023: 1.3
- Exchange Rate
- ULC-based REER (% change): 2023: -0.4
Press Release No. 24/327 — Executive Board of the International Monetary Fund concluded the Article IV consultation with Denmark on September 13, 2024.