Front Matter

Front Matter Page

IMF Country Report No. 18/177

DENMARK

2018 ARTICLE IV CONSULTATION—PRESS RELEASE AND STAFF REPORT

June 2018

Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2018 Article IV consultation with Denmark, the following documents have been released and are included in this package:

  • A Press Release.

  • The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on lapse of time basis following discussions that ended on May 16, 2018, with the officials of Denmark on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on June 1, 2018.

  • An Informational Annex prepared by the IMF staff.

The documents listed below have been or will be separately released.

  • Selected Issues

The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.

Copies of this report are available to the public from

International Monetary Fund • Publication Services

PO Box 92780 • Washington, D.C. 20090

Telephone: (202) 623–7430 • Fax: (202) 623–7201

E-mail: publications@imf.org Web: http://www.imf.org

Price: $18.00 per printed copy

International Monetary Fund

Washington, D.C.

© 2018 International Monetary Fund

Front Matter Page

DENMARK

STAFF REPORT FOR THE 2018 ARTICLE IV CONSULTATION

June 1, 2018

Key Issues

Context: The economy is experiencing a steady upswing, with emerging signs of labor shortages and capacity constraints. The outlook is for continued robust growth with symmetric risks around the baseline projection. A combination of rising housing prices and high household debt leaves Denmark vulnerable to shocks. The current account surplus remains large. Banks are sound and profitable.

Policy recommendations: Economic policies should boost potential growth and enhance macro-financial stability, while remaining vigilant against signs of demand pressures. In particular:

  • Fiscal policy. The use of existing fiscal space to support growth-enhancing reforms while remaining anchored at a medium-term objective is appropriate. However, if growth is faster than envisaged, the authorities should be prepared to step in to counter excessive demand pressures.

  • Macro-financial. Vulnerability risks stemming from high household leverage and rising house prices require coordinated policy actions, including enhancing the macroprudential toolbox, reducing overly favorable tax incentives, and relaxing housing supply restrictions.

  • Labor market. Building on the success of past policies, further action could help alleviate the inactivity trap of benefit recipients and low wage earners, foster greater participation of youth in the labor market, and better integrate migrants.

  • Productivity and investment. Product market deregulation efforts should continue in certain sectors to boost competition and lift productivity. Addressing the debt-bias would help revive investment.

  • Current account. The high surplus reflects income from foreign investment, expansion of corporates’ operations abroad, high pension savings and low domestic investment. While staff analysis does not identify policies that explain most of the excess current account surplus, structural policies aimed at raising investment would help reduce the excess surplus.

Approved By

Mahmood Pradhan (EUR) and Zeine Zeidane (SPR)

Discussions took place in Copenhagen during May 3–16, 2018. The staff team comprised Messrs. Segoviano (head), Papageorgiou, Pillonca, Poghosyan (all EUR), and was assisted at HQ by T. Scutaru and N. Tenali (both EUR). Messrs. Klemm, Hebous (both FAD), and Hillier (LEG) overlapped with the mission. Mr. Gade (OED) participated in the discussions. The mission met with Messrs. Jensen and Callesen, Governors of Danmarks Nationalbank; Mr. Kieler, Deputy Permanent Secretary of Ministry of Finance; Mr. Berg, Head of the DFSA; Mr. Skaarup, Deputy Permanent Secretary of Ministry of Taxation; other senior officials; and representatives from the Danish Economic Council, the Public Employment Service, social partners, and the financial sector.

Contents

  • RECENT DEVELOPMENTS

  • OUTLOOK AND RISKS

  • POLICIES FOR SUSTAINED GROWTH

  • A. Macroeconomic Policies

  • B. Financial Sector and Macro-Financial Policies

  • C. Structural Policies

  • STAFF APPRAISAL

  • Annex V. Authorities’ Response to Past IMF Policy Recommendations

  • BOX

  • 1. Tax Reform Options

  • FIGURES

  • 1. Recent Developments

  • 2. Labor Market Developments

  • 3. Recent Development in the Financial Sector

  • 4. Recent Development in the Housing Sector

  • TABLES

  • 1. Selected Economic and Social Indicators, 2015–23

  • 2. Balance of Payments, 2015–23

  • 3. International Investment Position, 2010–17

  • 4. GFSM 2001 Statement of General Government Operations, 2015–23 (Billons of DKK)

  • 5. GFSM 2001 Statement of General Government Operations, 2015–23 (Percent of GDP)

  • 6. Public Sector Balance Sheet, 2010–15

  • 7. Financial System Indicators, 2010–17

  • ANNEXES

  • I. External Balance Assessment

  • II. A Simple Model for Danish Wage Formation

  • III. Public Debt Sustainability Analysis

  • IV. Risk Assessment Matrix

  • V. Authorities’ Response to Past IMF Policy Recommendations

Front Matter Page

DENMARK

STAFF REPORT FOR THE 2018 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX

June 4, 2018

Prepared By

European Department

(In Consultation with Other Departments)

Contents

  • FUND RELATIONS

  • STATISTICAL ISSUES

Front Matter Page

Press Release No. 18/249

FOR IMMEDIATE RELEASE

June 21, 2018

International Monetary Fund

Washington, D.C. 20431 USA

Telephone 202–623–7100

Fax 202–623–6772

www.imf.org

Denmark: 2018 Article IV Consultation-Press Release and Staff Report
Author: International Monetary Fund. European Dept.