## IMF Staff Completes 2019 Article IV Mission to Denmark

_IMF News, May 13, 2019_

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## Bibliographic details
- Published: May 13, 2019

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### Mission and Publication
- Press Release No. 19/159
- Date: May 13, 2019
- IMF staff team led by Mr. Miguel Segoviano visited Copenhagen during April 30-May 13, 2019 to conduct discussions on the 2019 Article IV consultation.
- The views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.
- The IMF Executive Board is expected to discuss Denmark’s economic developments and policies on June 17, 2019. A staff report is expected to be published soon afterwards.

### Economic performance and projections
- “Denmark’s economic performance, based on a model that prizes social inclusion, continues to impress with high living standards.”
- Growth projections:
  - 2019: 1.7 percent
  - 2020: 1.9 percent
- Current drivers: Private consumption and investment expected to be the key drivers of growth, with financial conditions remaining accommodative and the fiscal stance broadly neutral for some time.
- Potential output growth:
  - From 1.4 percent in 2016
  - Projected to increase to 1.8 percent over the medium term (as a result of structural reforms and higher investment).
- Inflation and wages are expected to gradually rise.

### Downside risks and vulnerabilities
- Key downside risks:
  - A sharper than expected slowdown in Denmark’s main trading partners could slow export growth.
  - A disorderly Brexit could weigh on the economy, notably through trade and supply chain disruptions.
  - High household debt amid elevated house valuations.
  - The ongoing money laundering case could further affect confidence in the financial sector and undermine financial stability.
- Banking system: profitable, liquid and solvent, but pockets of vulnerabilities remain; lending surveys suggest some banks are relaxing credit standards for corporate loans.

### Fiscal stance and recommendations
- “Denmark’s public finances are sound with substantial fiscal space in the medium term.”
- Recommended fiscal approach:
  - Fiscal stance should remain neutral, while letting automatic stabilizers operate fully.
  - In the event of a severe downturn, consider additional temporary loosening, while remaining anchored to the medium-term objective.
  - Implement efficiency-improving reforms that cover both revenues and expenditures; these could be fiscally-neutral or designed to provide stimulus if loosening is warranted.

### Financial sector resilience and macroprudential policy
- To strengthen financial resilience, consider a combination of micro- and macroprudential tools to increase capital buffers, in addition to the Counter Cyclical Capital Buffer, if risks continue to build up.
- Bank vulnerabilities noted: potential relaxation of corporate loan credit standards.

### Anti-money laundering and supervisory recommendations
- Authorities should build upon recent efforts to strengthen cross-border AML/CFT supervision.
- Priority next steps:
  - (i) Develop a comprehensive institutional risk assessment model;
  - (ii) Increase the depth of the DFSA’s AML/CFT on-site inspections;
  - (iii) Further expand its sanctioning powers, including so as to enable it to levy administrative fines;
  - (iv) Strengthen international cooperation.

### Housing market
- The housing market is the major link between the economy and the financial sector.
- Vulnerabilities: high household leverage amid elevated house valuations.
- Recommended measures:
  - Enhance the macroprudential toolbox;
  - Reduce overly favorable tax incentives;
  - Implement policies to promote housing supply.

### Labor market and social policy recommendations
- Labor market is strong, with pressures gradually building in some sectors.
- Recommended measures:
  - Increase benefits to low-income workers to help alleviate inactivity traps and promote youth employment.
  - Reduce labor tax rates to increase hours worked.
  - Further incentivize upgrading of technical and digital skills, integrate migrants, and attract skilled foreign labor.

### Productivity and structural reforms
- Productivity growth remains weak, partly because of lower investment rates following the crisis.
- Recommended measures to boost investment and innovation:
  - Consider making R&D expenditures fully refundable to incentivize innovation among a larger spectrum of firms.
  - Address the debt bias and improve access to equity finance for SMEs to promote investment and help reduce the current account surplus.
  - Streamline and strengthen the complex Danish institutional framework for competition.

*IMF Staff statement at the conclusion of the April 30-May 13, 2019 Article IV mission to Denmark.*

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## References

- [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)
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_Source: https://www.imf.org/en/news/articles/2019/05/13/imf-staff-completes-2019-article-iv-mission-to-denmark_