Long abstract

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The Danish economy has been hit by the global economic crisis and is going through a deep and protracted recession. Fortunately, strong policy frameworks mean that Denmark is well placed to steer through the worst downturn in forty years. The fiscal position is comparatively strong and sizeable fiscal stimulus is already working its way through, supplementing strong automatic stabilisers. Labour market policies, including a strong focus on activation of the unemployed, should help employment recover quickly as the economy starts to grow again. However, the depth of the recession is likely to have medium-term consequences for the Danish economy via higher structural unemployment, reduced capital accumulation and possibly lower innovative activity. This chapter first briefly situates Denmark’s longer-run economic performance. It then reviews developments in financial markets and their implications for the real economy. Next, it turns to the likely consequences of the recession on medium-term growth and points to the financial, fiscal and labour market policies required to overcome the recession and minimise its adverse long-term consequences.