Population 5.576 million
GDP 309.18 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
1.3 |
0.8 |
0.2 |
0.9 |
|
Inflation (yearly average) (%)
|
2.3 |
2.8 |
2.5 |
1.7 |
|
Budget balance (% GDP)
|
-2.5 |
-1.8 |
-4 |
-1.7 |
|
Current account balance (% GDP)
|
5.6 |
6.6 |
6 |
5.7 |
|
Public debt (% GDP)
|
42.9 |
46.6 |
45.6 |
42.8 |
| (e) Estimate (f) Forecast | ||||
STRENGTHS
- Fifth biggest sea carrier in the world
- Energy self-sufficiency (oil in the North Sea and Greenland) and net energy exporter
- Niche industries (renewable energy/biotechnology)
- Very high household net worth (about 450% of disposable income)
- Political consensus on economic issues
- Moderate level of public debt
WEAKNESSES
- Open economy sensitive to external demand
- Danish crown practically pegged to the euro
- Erosion of the competitiveness of manufacturing businesses
- Very high level of household debt (325% of disposable income)
- Strong representation of public sector in employment (30% of wage-earners)
Risk assessment
Growth will make a timid recovery in 2013
Despite budgetary measures aimed at households and business investment, domestic demand has remained modest. However, firmer trends in demand from the main external partners in the first half of 2012 and the specialisation of Danish businesses in certain sectors (machinery and transport equipment represent 25% of exports) pushed up international sales. Therefore, external trade made a very slight contribution to growth over the year as a whole. In 2013, the effects of the public subsidies measures implemented in 2012 will be felt more strongly, which should give households some breathing space and allow growth to take off again, if only timidly.
Public spending to underpin consumption and investment
The higher than predicted amount (2.2% of disposable income) of early retirement pension payments made to civil servants in October 2012 is expected to have positive repercussions on household spending in 2013. But these effects will probably be limited by the Danes’ propensity to build up precautionary savings (about 10% of disposable income in 2012) since 2007. However, disposable income should stop contracting, which will compensate for several factors less favourable to consumption, like the record level of household debt (the highest among advanced countries), the negative effect on wealth caused by the fall in house prices (nearly 20% below 2007 prices), which is expected to continue in 2013. Faced with a high unemployment rate by Danish standards (6.4% compared with 2.7% in 2008) and announced job-shedding plans in the private sector, the government took measures in late 2012 to support consumption and social cohesion through training and health schemes aimed particularly at the young.
Moreover, the low interest rates, which should have boosted the housing market and construction, have not led households to take out more mortgages. This trend is expected to continue or even increase in 2013. Consequently, a housing market turnaround is unlikely despite government incentives for housing renovation. Public investment spending (Copenhagen metro, Femern Bridge to Germany, renewable energy) is expected to stimulate activity in building and public works.
The fiscal deficit, which widened in 2012 due to the one-off early payment of pensions, is expected to fall in 2013 with the introduction of tax reforms, while public debt will remain contained.
Good geographic orientation of exports will be an advantage
A very open economy, Denmark will continue to be affected by the slowing of European demand, which accounts for two thirds of its exports. The impact will, however, be mitigated by solid activity in Norway (7% of exports) and the relative resilience of Sweden (13%), Germany (16.5%) and the United States (6%). Against this, weak demand from the United Kingdom (9%) is expected to be only partly offset by the Danish krone’s favourable exchange rate against the pound. However, Denmark will continue to see its market share decline despite the improvement of businesses’ competitiveness favoured by the marked contraction in unit labour costs in 2012. But an intensification of the eurozone crisis constitutes a risk for exporting firms, which could see then their activity fall sharply.
Consolidation of the banking sector likely to continue
Denmark has some hundred banks. Among them, about ten could go bankrupt between 2012 and 2013. About thirty of them have not been inspected by the Danish Financial Services Authority, which could further weaken interbank confidence. Electrical equipment and mechanical engineering industries linked to seafood products, shipbuilding, pharmaceuticals and green energy are likely to stand up well during a second year of sluggish growth. Maritime transport, for its part, is expected to benefit from a modest revival of activity. The sectors devoted to domestic market should be affected by household decisions on their resource allocation. In this context, bankruptcies could accelerate slightly (more than 6% over the three months to October 2012 compared with the same period in 2011). Coface’s payment record is satisfactory, below the world average.
