GDP is projected to grow in 2016 and 2017 at just under 2%, supported by investment and a pick-up in world trade. Households will continue to reap the benefits of low inflation and energy prices and a stronger labour market. Exporters will get a boost from the weaker effective exchange rate and stronger growth in the European Union.
While the accommodative monetary policy continues to maintain the euro exchange rate peg, the economy is reaching its capacity, thereby raising pressure for fiscal policy tightening. To reduce tensions in local real estate markets, further macroprudential tools would be warranted to limit the risk of another house-price-driven boom-bust cycle, including raising property taxes and updating property values, in particular in Copenhagen. To foster competition, regulation in retail and professional services needs to be eased.
Denmark has pioneered wind power and is a global player in production of wind turbines. Moreover, the country is currently on an ambitious transition to fossil-fuel-free energy supply by 2050. Given a new focus on cost-benefit assessment of climate change policies, the recently renewed housing improvements scheme should be targeted to credit-constrained households.