Economic surveys and country surveillance

Economic Survey of Denmark 2012

 

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The current international slowdown entails new risks for the Danish economy, which so far had been recovering only slowly and unevenly from the unwinding of a massive domestic property boom and the global crisis that erupted in 2007 08. The main challenge is to secure the necessary space for policies to cope with potential further adverse shocks by sticking to the current plans and to bring about strong, sustainable and greener growth. The economy displays a number of strengths. The fiscal position is relatively sound. The flexicurity system helps adjust to shocks while limiting the social cost of unemployment and the risk that it becomes entrenched. The welfare system ensures low poverty and inequality. However, competitiveness has deteriorated in the past decade and productivity growth has been weak, eroding potential growth. Moreover, vulnerabilities remain in the financial sector. Denmark’s green growth ambitions might translate into new sources of growth, but energy and climate change policies need to be reviewed to achieve better results at low cost.

The Danish economy faces headwinds

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Improving financial stability. Further strengthening cooperation between the financial supervisory authorities and enhanced prudential tools, in line with developments at EU level, would improve financial stability. Systemically important financial institutions may need to be subjected to higher capital requirements. Issuance of new deferred-amortisation mortgage loans should be closely supervised to preserve the quality of the assets of mortgage issuers.

 

Further encouraging competition. Despite some recent progress, there is ample scope for greater competition in a number of sectors, which would boost productivity growth. Decreasing the number of institutions involved in competition policy and granting them more power would improve their effectiveness

 

Strengthening the fiscal framework. Better control of public expenditure would help to ensure long-term fiscal sustainability without raising the already high tax burden, which acts as a drag on economic growth. This could be achieved by introducing multi-annual spending ceilings at the general government level, covering most spending, and broadening the Danish Economic Council’s fiscal monitoring mandate. To ensure that individual municipalities are constrained by expenditure ceilings covering all municipalities, the use of individual and credible sanctions should continue.

 

Raising the efficiency of social expenditures. The reform of the early retirement scheme will increase labour supply and strengthen the sustainability of the welfare system. Reducing the share of the working-age population receiving sickness and disability benefits is also crucial to achieve these goals. The authorities will have to ensure that the new senior disability scheme does not lead to a greater uptake of these benefits. The special disabled employment programme (Fleksjob) should also be reconsidered, in particular by making it more targeted and less generous. The efficiency of public spending on education and health care can be improved.

 

Towards green growth: improving energy and climate change policies. Regular reassessment of national climate and energy targets in light of international and technology developments would reduce their costs. Supporting technologies in a more neutral way would increase the chances of adopting the best technologies and reduce the risks of costly mistakes. It would be consistent with Denmark’s ambitious targets to push for lower emissions caps in future EU negotiations. Hiking some taxes on fossil fuels would help harmonise the implicit price of carbon and encourage GHG emission cuts in the transport and residential sector. Efforts to cut GHG emissions from agriculture should continue.

How to obtain this publication

 

The complete edition of the Economic Survey of Denmark is available from:

 

Additional information

For further information please contact the Denmark Desk at the OECD Economics Department at eco.survey@oecd.org.

The OECD Secretariat's report was prepared by Stéphanie Jamet and Muge Adalet-McGowan under the supervision of Vincent Koen. The draft has benefited from background research by Jean-Marc Burniaux, consultant. Research assistance was provided by Lutécia Daniel.

www.oecd.org/eco/surveys/denmark

* This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.

 

 

 

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