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Economic growth is projected to strengthen in 2017 and 2018, on the back of stronger private consumption, stronger foreign demand and a very accommodative monetary policy stance. With labour markets tightening, inflationary pressures will surface. Public investment is set to ease. The current account surplus will remain sizeable, driven by an improving trade balance and strong income from large net foreign asset holdings.
The fiscal stance remains broadly neutral, and fiscal initiatives should focus on investment and bringing more people to the labour market to ease supply constraints. Sustained very low interest rates risk fuelling a housing bubble; prices have been rising already in Copenhagen. With monetary policy governed by the currency peg, tighter macro-prudential restrictions would be prudent.
Denmark is well integrated in the global trade system. A strong social safety net and sizeable active labour market programmes are in place to ensure fairly smooth adjustment to changing labour market needs. Recent policy initiatives to improve labour market integration of migrants and to extend working lives are bearing fruit. To maintain a competitive position, wage growth needs to follow productivity improvements.
Economic Survey of Denmark (survey page)