Country Report Denmark October 2017

Country Report Denmark October 2017

  • October 2017 •
  • Report ID: 325823 •
  • Format: PDF

Outlook for 2018-22



  • The formation in 2016 of a three-party, centre-right coalition, led by the Liberal Party and backed by the Liberal Alliance (LA) and the Conservative People's Party (KF), has reduced the risk of an imminent government collapse.
  • The coalition still falls short of a parliamentary majority, leaving it dependent on the support of the right-wing Danish People's Party (DF). The Economist Intelligence Unit does not expect the government to last a full term.
  • The DF wields significant influence outside of government. It is unlikely to press for an in-out EU vote, but will push to revise the terms of Denmark's membership, especially if the UK achieves a favourable Brexit deal.
  • The potential for financial market volatility in 2017-18, linked to political uncertainty in Europe and the US, suggests that ongoing intervention will be needed to stabilise the krone peg to the euro.
  • We forecast that the budget deficit will expand in 2019, to 1% of GDP, re-flecting the impact on public spending of the new property valuation system. The deficit should then narrow again, before moving into surplus in 2021.
  • Following an expansion of 1.7% in 2016, we expect annual real GDP growth to pick up to 2.5% in 2017 and to average 1.8% in 2018-22, mainly supported by private consumption and investment.


Review



  • On August 29th the government presented a tax plan that includes tax cuts worth Dkr23bn (US$3.65bn). The "employment tax deduction" would be extended to higher incomes and a "job deduction" would be created.
  • On August 30th a list of 22 growth initiatives aimed at spurring commercial activity was presented by the government. These will cost Dkr2bn per year until 2025. One proposal is to reduce by 25% the toll price for crossing the bridge that connects Copenhagen, the capital, with the rest of Denmark.
  • On August 31st the government presented its budget for 2018, which includes a growth limit of 0.5% on public expenditure-higher than the 0.3% limit previously announced.
  • In the second quarter the economy grew by a seasonally adjusted 0.6% quarter on quarter and by an unadjusted 1.9% year on year, according to Statistics Denmark.
  • In the first half of the year a general government deficit of Dkr8.6bn was recorded-equivalent to around 0.8% of estimated full-year GDP. The stock of gross public debt totalled Dkr776bn at end-June, equivalent to 36.3% of GDP (down from 40% a year earlier).


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