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After reaching 2.2% in 2017, GDP growth is projected to return to a pace of 2% in 2018 and 2019, supported by robust domestic demand. Wages and inflation are expected to rise as labour resources become increasingly scarce.
Monetary policy conditions will continue to support demand, especially private investment. A neutral fiscal stance over the projection period is appropriate, given intensifying capacity constraints. Tensions in the labour market should be eased by addressing barriers to employment for immigrants, older workers and those with reduced work capacity.
Financial vulnerabilities stem from very high gross household debt and continued house price increases. House price developments pose risks to future domestic demand, since sustained very low interest rates can fuel a housing bubble in the Copenhagen area. The recent strengthening of macro-prudential policies and reform of property valuation and taxation are welcome. However, the debt-bias in the tax system in favour of housing and credit needs to be lowered.
Economic Survey of Denmark (survey page)