Country Forecast Denmark March 2018 Updater

Country Forecast Denmark March 2018 Updater

  • March 2018 •
  • Report ID: 5365348 •
  • Format: PDF


  • In the June 2015 election the centre-right "blue bloc" of the Liberal Party, the Danish People's Party (DF), the Liberal Alliance (LA) and the Conservative People's Party (KF) won a narrow victory, beating the centre-left "red bloc", which includes the former governing parties of the Social Democrats and the Social Liberal Party. The anti-immigration DF was the big winner, becoming the largest party in the blue bloc, but it opted to remain outside of the government.
  • In late 2016 the Liberal Party, headed by the prime minister, Lars Lokke Rasmussen, was joined in government by the LA and the KF. This tripartite coalition reduced the risk of a government collapse. However, the government controls only 53 out of 179 parliamentary seats, meaning that the DF's 37 votes are still needed to ensure a majority. The Economist Intelligence Unit maintains its forecast that the government will fail to see out its full term to 2019.
  • The government's central strategy to boost economic activity is the 2025 growth plan, but the coalition has suffered major political defeats in negotiations with the DF. As a consequence, a watered-down version of the plan will be implemented instead. The DF will further increase tensions with the centre-right parties by demanding an overhaul of immigration policy.
  • A strengthening and broad-based recovery in the euro zone, and a rebound in global trade and business investment supported real GDP growth in 2017, which averaged 2.1%. In 2018 we expect real GDP growth to remain firm, driven by stronger domestic demand. The economy will continue to grow at robust rates, for a maturing economy, at an average of 1.7% in 2019-22.
  • Inflation has remained subdued over the past few years, averaging 0.5% in 2013-16. In 2017 price growth stood at 1.1%, driven by higher food and energy prices, but price pressures have weakened since. Inflation should remain subdued in 2018, but pick up gradually in 2019-22, to an average of 1.6%. Risks are on the upside, as the tighter labour market could lead to stronger than expected wage growth.
  • The central objective of the central bank's monetary policy is to maintain a peg to the euro within a corridor of Dkr7.46:EUR1 ±2.25%. We believe that the peg will remain credible in the forecast period (2018-22). Interest rates should remain negative throughout this period, but small increases are possible.


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