Denmark - Economy
Denmark's industrialized market economy depends on imported raw materials and foreign trade. Within the European Union, Denmark advocates a liberal trade policy. Its standard of living is among the highest in the world. Denmark devoted 0.82% of gross national income (GNI) in 2008 to foreign aid to less developed countries, including for peace and stability purposes, refugee pre-asylum costs, and for environmental purposes in central and eastern Europe and developing countries, making Denmark one of the few countries that are contributing more than the UN goal of 0.7 % of GNI to aid.
Economic performance has been relatively weak for an extended period, notably on account of low productivity growth that lagged peers. In 2016, a trend decline in oil and gas production also started to weigh on output. Moreover, Denmark was hard hit by the 2008/09 global crisis, which coincided with the puncture of a local housing bubble. The initial recovery was interrupted by renewed weakness in 2012–13, broadly following developments in the neighboring euro area to which the Danish economy is closely tied. A moderate recovery resumed from 2014.
The outlook is for a gradual further recovery. Supported by low interest rates and oil prices, private consumption would continue to be the main driver for growth in the short term. However, investment was also projected to pick up, reflecting the diminishing impact of firm deleveraging and the strong recovery in the housing market. Export growth was likely to remain low, in line with the weak external environment. On these trends, the economy was forecast in 2016 to grow by 1.3 percent in 2016 and 1.6 percent in 2017. Inflation was 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.
A sharper than expected slowdown in Europe or in emerging markets could derail the recovery given Denmark’s deep integration in the world economy. Also, in view of exceptionally high household debt and a high share of adjustable rate mortgages, volatility in global financial conditions leading to a spike in market interest rates could abruptly raise households’ debt service and depress consumption. The disruption of trade and financial flows that would likely accompany a “Brexit” compounds these risks. Domestically, an unchecked continuation of rapid house price increases would heighten the risk of a correction over the medium term.
Denmark is a net exporter of food and energy. Its principal exports are machinery, instruments, and food products. The United States is Denmark's largest non-European trading partner, accounting for 4.4% of total Danish trade in 2008. Aircraft, computers, machinery, and instruments are among the major U.S. exports to Denmark. Among major Danish exports to the United States are industrial machinery, chemical products, furniture, pharmaceuticals, canned ham and pork, windmills, and plastic toy blocks (Lego). In addition, Denmark has a significant services trade with the U.S., a major share of it stemming from Danish-controlled ships engaged in container traffic to and from the United States (notably by Maersk-Line). There were 402 U.S.-owned companies operating in Denmark in 2007.
Like the rest of the world Denmark is affected by the global economic crisis. As of October 2009, unemployment was rising and private consumption had contracted significantly. Exports had fallen dramatically, also due to the devaluation of trading partners' currencies, especially those of Sweden, Norway, and the U.K., but exports had stabilized at about 20% below previous levels. A contraction of GDP is expected in 2009, with estimates ranging from 3% to 5%. Denmark entered recession in mid-2007 before the onset of the global economic crisis, and the slowdown has been considerable. The Danish economy contracted by 1.1% in 2008 and 5.3% in the first half of 2009. In 2008, the budget surplus was $11.79 billion. In 2009 a deficit of $668 million is expected. Unemployment is relatively low at 6.4%, but up from 3% in June 2008, and is expected to peak just under double digits in early 2011. Most local observers agree that Denmark is on the path to a slow recovery and forecast economic growth from the 3rd or 4th quarter of 2009 onward.
In addition to the global crisis, Denmark had an underlying growth problem, and is projected to have the fourth-lowest productivity growth among Organization for Economic Cooperation and Development (OECD) countries in the decade to come; it dropped from sixth to twelfth place among the richest OECD nations from 1997 to 2007. Denmark has maintained a stable currency policy since the early 1980s, with the krone formerly linked to the Deutschmark and since January 1, 1999, to the euro. Denmark meets the economic convergence criteria for participating in the third phase (a common European currency--the euro) of the European Monetary Union (EMU), but the public deficit is expected to exceed the allowed 3% of GDP in 2010.
Although a referendum on EMU participation held on September 28, 2000 resulted in a firm "no" and Denmark, therefore, has not yet adopted the euro, opinion polls show a majority now in favor of EMU. Another referendum on the EMU/euro is expected, though no sooner than 2011. Danes are generally proud of their welfare safety net, which ensures that all Danes receive basic health care and need not fear real poverty. However, at present the portion of working-age Danes (16 to 66-year-olds) living mostly on government transfer payments amounts to 22.6%. The heavy load of government transfer payments burdens other parts of the system. Health care, other than for acute problems, and care for the elderly and children have suffered, while taxes remain among the highest in the world. Thirty-two percent of the labor force is employed in the public sector.
When foreigners speak about the Danish Model, they are often thinking mainly of the Danish labor market, which many see as having a magic formula. In itself, the situation is indeed curious. Workers and other employees in Denmark enjoy good wages and social benefits. Nonetheless, Danish companies in many industries are among the most competitive on the world market.
Danish workers are among the most highly organised in the world – 85% belong to a union. As the employers are equally highly organised, the labour market enters into agreements without state involvement. It also disciplines itself through a specially developed labour law system. This ensures robust agreements, which moreover cover several years, and few working days are lost due to conflicts. However, a judgment at the European Court of Justice at the end of 2006, which prohibits in practice compulsory union membership, has now resulted in some members leaving the established unions.
A unique and crucial point is that Danish employers can fire employees at very short notice. This allows the companies to adjust to changing market trends without suffering losses. Those losing their jobs do not suffer either, as the state suddenly appear – now with unemployment benefit which is not very different from the wages.
Moreover, the unemployed have a good chance of finding another job quickly, as Denmark invests heavily in further education and retraining. The good retraining opportunities also mean that industries which are short of labour or new industries do not have to wait a long time for the necessary workers.
The unions are aware of Denmark’s position as an export nation. Their wage demands on behalf of the members are reasonable, so as not to jeopardise the striking competitiveness of Danish goods.
The employment rate for women is exceptionally high, perhaps the highest in the world: 73.1% in 2005 as against 79.4% for men. In other words, as a rule both man and wife have full-time jobs in Denmark. This enriches the labour market with a lot of talent and initiative, which would otherwise have remained in the kitchen and nursery. The massive female employment has become possible through the equality of the sexes and the public childcare system which allows both parents to work a full working week of 37 hours without worrying about who will look after their children.
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