## IMF Executive Board Concludes 2016 Article IV Consultation with Denmark

_IMF News, July 5, 2016_

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## Bibliographic details
- Published: July 5, 2016

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### Economic performance and outlook
- 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):
  - Private consumption expected to continue as main driver for growth in the short term, supported by low interest rates and oil prices.
  - Investment projected to pick up as firm deleveraging diminishes and the housing market recovers.
  - Export growth likely to remain low, in line with the weak external environment.
  - “The economy is forecast to grow by 1.3 percent in 2016 and 1.6 percent in 2017.”
  - “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.”
- Table-based supply and demand indicators (selected, by year):
  - Real GDP: 2013: -0.2; 2014: 1.3; 2015: 1.2; 2016: 1.6; 2017: 1.8; 2018: 1.9.
  - Final domestic demand: 2013: 0.0; 2014: 1.0; 2015: 1.5; 2016: 2.0.
  - Private consumption: 2013: -0.1; 2014: 0.5; 2015: 2.1; 2016: 2.4; 2017: 2.5.
  - Gross fixed investment: 2013: 1.1; 2014: 3.4; 2015: 0.8; 2016: 3.0; 2017: 2.8.
  - Gross national saving (percent of GDP): 2013: 26.6; 2014: 27.6; 2015: 26.3; 2016: 26.0; 2017: 26.1.
  - 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.
  - Output gap (percent of potential output): 2013: -1.7; 2014: -1.2; 2015: -1.0; 2016: -0.5; 2017: -0.3.
  - Harmonized unemployment rate (percent): 2013: 7.0; 2014: 6.5; 2015: 6.2; 2016: 6.0; 2017: 5.8; 2018: 5.7.
  - Public finance (percent of GDP), selected lines:
    - 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.
    - 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.
    - Overall balance: 2013: -1.1; 2014: -2.1; 2015: -2.3; 2016: -1.9; 2017: -1.5.
    - Primary balance: 2013: -0.9; 2014: -1.4; 2015: -1.6; 2016: -1.3; 2017: -0.8.
    - Gross debt: 2013: 44.6; 2014: 45.8; 2015: 47.2; 2016: 47.5; 2017: 47.1; 2018: 46.3; 2019: 45.5.
  - External accounts (percent of GDP), selected lines:
    - 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.
    - Imports of goods & services: 2013: 47.8; 2014: 47.3; 2015: 46.8; 2016: 48.8; 2017: 53.2; 2018: 54.6.
    - 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.
    - Current account: 2013: 7.1; 2014: 7.7; 2015: 6.9; 2016: 6.4.
  - Selected price and rate indicators:
    - M3 growth (end of year): 2014: 12.6; 2015: 11.9.
    - Short-term interbank interest rate (3 month): 2014: 0.3.
    - Average DKK per US$ rate: 2013: 6.7.
  - Social indicators (reference year):
    - GDP per capita, USD (2013): $59,129.
    - At-risk-of-poverty rate (2012): 19.0 percent.

### Risks and vulnerabilities
- Downside risks dominate:
  - A sharper than expected slowdown in Europe or in emerging markets could derail the recovery given Denmark’s deep integration in the world economy.
  - 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.
  - Disruption of trade and financial flows from a “Brexit” compounds external risks.
  - Domestically, rapid house price increases, if unchecked, would heighten the risk of a correction over the medium term.

### Executive Board assessment and policy recommendations
- General guidance:
  - 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.
- Fiscal policy:
  - 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.
  - If downside risks materialize, automatic stabilizers should be allowed to operate and short-term fiscal support would be warranted.
  - Conversely, a faster fiscal tightening may be needed if the recovery gathers pace faster than expected.
- Monetary policy:
  - Directors agreed that monetary policy should continue to focus on maintaining the exchange rate peg.
- Financial sector and macroprudential policy:
  - Rapid price increases in segments of the housing market together with high household indebtedness could pose macroeconomic and financial stability risks.
  - 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.
  - Recommended actions included:
    - Strengthen the macroprudential toolbox.
    - Consider introducing debt-to-income limits.
    - Reduce the tax deductibility of mortgage interest payments.
    - End the procyclical valuation freezes for land and property taxes.
    - Encourage efforts to alleviate supply constraints and ease tight rental market regulations.
  - Financial supervision and regional cooperation:
    - Commended good follow up on the 2014 FSAP advice and encouraged implementation of remaining recommendations.
    - Suggested measures to strengthen the operational independence of the financial supervisor (DFSA).
    - 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.
- Structural and growth policies:
  - Welcomed the government’s growth package, including plans to devise a new strategy for selected network sectors and to liberalize the Planning Act.
  - Encouraged reforms to strengthen competition and increase firm productivity, including by reducing product market regulation particularly in retail trade and some network sectors.
- Migration and integration:
  - Welcomed the new tripartite agreement on integration of migrants, but stressed that implementation will need to be closely monitored.
  - 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.

_Excerpted from Press Release No. 16/305, IMF Communications Department, July 5, 2016._

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## Content in this bundle

- [Country Report (PDF)](/external/pubs/ft/scr/2016/cr16184.pdf){rel="external" type="application/pdf"}
- **Table: Denmark: Selected Economic and Social Indicators, 2013–21**
  - [Table: Denmark: Selected Economic and Social Indicators, 2013–21 (Markdown version)](/-/media/files/news/press-release/tables-pdf-format/engpr16305table.pdf.md){rel="alternate" type="text/markdown"}
  - [Table: Denmark: Selected Economic and Social Indicators, 2013–21 (PDF)](/-/media/files/news/press-release/tables-pdf-format/engpr16305table.pdf){rel="external" type="application/pdf"}

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## References

- [Denmark and the IMF](http://www.imf.org/external/country/DNK/index.htm)
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- [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)

_Source: https://www.imf.org/en/news/articles/2016/07/05/20/47/pr16305-denmark-imf-executive-board-concludes-2016-article-iv-consultation_