{
  "title": "IMF Executive Board Concludes 2016 Article IV Consultation with Denmark",
  "publication": "IMF News, July 5, 2016",
  "sourceUrl": "https://www.imf.org/en/news/articles/2016/07/05/20/47/pr16305-denmark-imf-executive-board-concludes-2016-article-iv-consultation",
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  "summary": "Extended period of relatively weak growth, notably on account of low productivity growth that has lagged peers.",
  "publishDate": "2016-07-05",
  "sections": [
    {
      "heading": "Economic performance and outlook",
      "content": "- Extended period of relatively weak growth, notably on account of low productivity growth that has lagged peers.\n- Trend decline in oil and gas production has started to weigh on output.\n- Denmark was hard hit by the 2008/09 global crisis, coinciding with the puncture of a local housing bubble; initial recovery interrupted by renewed weakness in 2012–13; moderate recovery resumed from 2014.\n- Short-term drivers and forecasts (narrative):\n  - Private consumption expected to continue as main driver for growth in the short term, supported by low interest rates and oil prices.\n  - Investment projected to pick up as firm deleveraging diminishes and the housing market recovers.\n  - Export growth likely to remain low, in line with the weak external environment.\n  - “The economy is forecast to grow by 1.3 percent in 2016 and 1.6 percent in 2017.”\n  - “Inflation is expected to remain subdued in 2016, reflecting lower oil prices, but then rise steadily, reaching 2 percent in the outer years reflecting a tightening labor market and a closing output gap.”\n- Table-based supply and demand indicators (selected, by year):\n  - Real GDP: 2013: -0.2; 2014: 1.3; 2015: 1.2; 2016: 1.6; 2017: 1.8; 2018: 1.9.\n  - Final domestic demand: 2013: 0.0; 2014: 1.0; 2015: 1.5; 2016: 2.0.\n  - Private consumption: 2013: -0.1; 2014: 0.5; 2015: 2.1; 2016: 2.4; 2017: 2.5.\n  - Gross fixed investment: 2013: 1.1; 2014: 3.4; 2015: 0.8; 2016: 3.0; 2017: 2.8.\n  - Gross national saving (percent of GDP): 2013: 26.6; 2014: 27.6; 2015: 26.3; 2016: 26.0; 2017: 26.1.\n  - Gross domestic investment (percent of GDP): 2013: 18.9; 2014: 19.1; 2015: 19.0; 2016: 19.3; 2017: 19.4; 2018: 19.6; 2019: 19.7.\n  - Output gap (percent of potential output): 2013: -1.7; 2014: -1.2; 2015: -1.0; 2016: -0.5; 2017: -0.3.\n  - Harmonized unemployment rate (percent): 2013: 7.0; 2014: 6.5; 2015: 6.2; 2016: 6.0; 2017: 5.8; 2018: 5.7.\n  - Public finance (percent of GDP), selected lines:\n    - Total revenues: 2013: 55.5; 2014: 57.4; 2015: 53.6; 2016: 51.1; 2017: 50.0; 2018: 49.7; 2019: 49.5; 2020: 49.4.\n    - Total expenditures: 2013: 56.5; 2014: 56.0; 2015: 55.7; 2016: 53.5; 2017: 51.9; 2018: 51.4; 2019: 51.0; 2020: 50.6; 2021: 50.4.\n    - Overall balance: 2013: -1.1; 2014: -2.1; 2015: -2.3; 2016: -1.9; 2017: -1.5.\n    - Primary balance: 2013: -0.9; 2014: -1.4; 2015: -1.6; 2016: -1.3; 2017: -0.8.\n    - Gross debt: 2013: 44.6; 2014: 45.8; 2015: 47.2; 2016: 47.5; 2017: 47.1; 2018: 46.3; 2019: 45.5.\n  - External accounts (percent of GDP), selected lines:\n    - Exports of goods & services: 2013: 53.9; 2014: 53.4; 2015: 52.4; 2016: 54.2; 2017: 57.1; 2018: 58.3; 2019: 59.5.\n    - Imports of goods & services: 2013: 47.8; 2014: 47.3; 2015: 46.8; 2016: 48.8; 2017: 53.2; 2018: 54.6.\n    - Trade balance, goods and services: 2013: 6.1; 2014: 6.3; 2015: 5.6; 2016: 5.5; 2017: 5.3; 2018: 5.2; 2019: 5.1; 2020: 4.9.\n    - Current account: 2013: 7.1; 2014: 7.7; 2015: 6.9; 2016: 6.4.\n  - Selected price and rate indicators:\n    - M3 growth (end of year): 2014: 12.6; 2015: 11.9.\n    - Short-term interbank interest rate (3 month): 2014: 0.3.\n    - Average DKK per US$ rate: 2013: 6.7.\n  - Social indicators (reference year):\n    - GDP per capita, USD (2013): $59,129.\n    - At-risk-of-poverty rate (2012): 19.0 percent."
    },
    {
      "heading": "Risks and vulnerabilities",
      "content": "- Downside risks dominate:\n  - A sharper than expected slowdown in Europe or in emerging markets could derail the recovery given Denmark’s deep integration in the world economy.\n  - Exceptionally high household debt and a high share of adjustable rate mortgages raise vulnerability: volatility in global financial conditions leading to a spike in market interest rates could abruptly raise households’ debt service and depress consumption.\n  - Disruption of trade and financial flows from a “Brexit” compounds external risks.\n  - Domestically, rapid house price increases, if unchecked, would heighten the risk of a correction over the medium term."
    },
    {
      "heading": "Executive Board assessment and policy recommendations",
      "content": "- General guidance:\n  - Directors encouraged the authorities to build on a strong track record of sound policies to help sustain the economic recovery, reduce financial sector vulnerabilities, and raise growth prospects.\n- Fiscal policy:\n  - Considering Denmark’s moderate public debt level and the absence of an independent monetary policy, Directors broadly supported plans for a gradual fiscal consolidation while allowing flexibility for fiscal policy to act as the main stabilizer of cyclical fluctuations.\n  - If downside risks materialize, automatic stabilizers should be allowed to operate and short-term fiscal support would be warranted.\n  - Conversely, a faster fiscal tightening may be needed if the recovery gathers pace faster than expected.\n- Monetary policy:\n  - Directors agreed that monetary policy should continue to focus on maintaining the exchange rate peg.\n- Financial sector and macroprudential policy:\n  - Rapid price increases in segments of the housing market together with high household indebtedness could pose macroeconomic and financial stability risks.\n  - Directors welcomed recent measures expected to restrain mortgage lending and the strengthened risk management guidance for lenders, but believed more should be done to mitigate medium-term risks.\n  - Recommended actions included:\n    - Strengthen the macroprudential toolbox.\n    - Consider introducing debt-to-income limits.\n    - Reduce the tax deductibility of mortgage interest payments.\n    - End the procyclical valuation freezes for land and property taxes.\n    - Encourage efforts to alleviate supply constraints and ease tight rental market regulations.\n  - Financial supervision and regional cooperation:\n    - Commended good follow up on the 2014 FSAP advice and encouraged implementation of remaining recommendations.\n    - Suggested measures to strengthen the operational independence of the financial supervisor (DFSA).\n    - Welcomed efforts to enhance regional cooperation on financial stability issues given Nordic banking interconnectedness, and underscored the importance of reaching strong agreements on information sharing, cross-border supervision, depositor protection, and resolution arrangements.\n- Structural and growth policies:\n  - Welcomed the government’s growth package, including plans to devise a new strategy for selected network sectors and to liberalize the Planning Act.\n  - Encouraged reforms to strengthen competition and increase firm productivity, including by reducing product market regulation particularly in retail trade and some network sectors.\n- Migration and integration:\n  - Welcomed the new tripartite agreement on integration of migrants, but stressed that implementation will need to be closely monitored.\n  - Urged the authorities to consider lifting restrictions on accepting regular work while asylum requests are being processed and starting integration programs earlier for asylum seekers whose requests have a high probability of success.\n\nExcerpted from Press Release No. 16/305, IMF Communications Department, July 5, 2016.\n\n---\n\n Content in this bundle\n\n- Country Report (PDF){rel=\"external\" type=\"application/pdf\"}\n- Table: Denmark: Selected Economic and Social Indicators, 2013–21\n  - Table: Denmark: Selected Economic and Social Indicators, 2013–21 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Table: Denmark: Selected Economic and Social Indicators, 2013–21 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\n References\n\n- Denmark and the IMF\n- IMF Policy Advice -- A Factsheet\n- Press Releases\n- PRESS CENTER\n- http://www.imf.org/external/np/sec/misc/qualifiers.htm\n- http://www.imf.org/external/np/sec/misc/qualifiers.htm.\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2016/07/05/20/47/pr16305-denmark-imf-executive-board-concludes-2016-article-iv-consultation"
    }
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    "Published: July 5, 2016",
    "Extended period of relatively weak growth, notably on account of low productivity growth that has lagged peers.",
    "Trend decline in oil and gas production has started to weigh on output.",
    "Denmark was hard hit by the 2008/09 global crisis, coinciding with the puncture of a local housing bubble; initial recovery interrupted by renewed weakness in 2012–13; moderate recovery resumed from 2014.",
    "Short-term drivers and forecasts (narrative):",
    "Table-based supply and demand indicators (selected, by year):",
    "Downside risks dominate:",
    "General guidance:",
    "Fiscal policy:",
    "Monetary policy:",
    "Financial sector and macroprudential policy:",
    "Structural and growth policies:",
    "Migration and integration:",
    "[Country Report (PDF)](/external/pubs/ft/scr/2016/cr16184.pdf){rel=\"external\" type=\"application/pdf\"}",
    "**Table: Denmark: Selected Economic and Social Indicators, 2013–21**",
    "[Denmark and the IMF](http://www.imf.org/external/country/DNK/index.htm)",
    "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)",
    "[Press Releases](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[http://www.imf.org/external/np/sec/misc/qualifiers.htm](http://www-stg-ext.imf.org/external/np/sec/misc/qualifiers.htm)",
    "[http://www.imf.org/external/np/sec/misc/qualifiers.htm.](http://www-stg-ext.imf.org/external/np/sec/misc/qualifiers.htm.)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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