Via IMF (Den Internationale Valutafond)

IMF Staff Completes 2019 Article IV Mission to Denmark

May 13, 2019

End-of-Mission press releases include statements of IMF staff teams that
convey preliminary findings after a visit to a country. The views expressed
in this statement are those of the IMF staff and do not necessarily
represent the views of the IMF’s Executive Board. Based on the preliminary
findings of this mission, staff will prepare a report that, subject to
management approval, will be presented to the IMF’s Executive Board for
discussion and decision.

  • Denmark’s economic performance, based on a model that prizes social
    inclusion, continues to impress with high living standards.
  • The outlook is for continued strong growth but with downside risks.
  • The fiscal stance should remain neutral and policies should pursue higher
    potential growth and strengthen financial resilience.

An International Monetary Fund (IMF) staff team, led by Mr. Miguel
Segoviano, visited Copenhagen during April 30-May 13, 2019 to conduct
discussions on the 2019 Article IV consultation. At the conclusion of the
visit, Mr. Segoviano issued the following statement:

“Denmark’s economic performance, based on a model that prizes social
inclusion, continues to impress with high living standards. Growth remained
solid in 2018, supported by domestic demand, with the economy operating
above potential. The economy is projected to grow by 1.7 and 1.9 percent in
2019 and 2020 respectively. Private consumption and investment are expected
to be the key drivers of growth, with financial conditions remaining
accommodative and the fiscal stance broadly neutral for some time.
Inflation and wages are expected to gradually rise. From 1.4 percent in
2016, potential output growth is projected to increase to 1.8 percent over
the medium term, as a result of structural reforms and higher investment.

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“The outlook is for continued strong growth but with downside risks. A
sharper than expected slowdown in Denmark’s main trading partners could
slow export growth. A disorderly Brexit could weigh on the economy, notably
through trade and supply chain disruptions. High household debt amid
elevated house valuations remains a key vulnerability. The ongoing money
laundering case could further affect confidence in the financial sector and
undermine financial stability.

“Denmark’s public finances are sound with substantial fiscal space in the
medium term. The fiscal stance should remain neutral, while letting
automatic stabilizers operate fully. In the event of a severe downturn,
additional temporary loosening should be considered, while remaining
anchored to the medium-term objective. Efficiency-improving reforms that
cover both revenues and expenditures could be implemented in a
fiscally-neutral way or designed to provide stimulus if loosening is

“The banking system is profitable, liquid and solvent, but pockets of
vulnerabilities remain. Lending surveys suggest that some banks are
relaxing credit standards for corporate loans. To strengthen financial
resilience, a combination of micro- and macroprudential tools should be
considered to increase capital buffers, in addition to the Counter Cyclical
Capital Buffer, if risks continue to build up.

“The authorities should build upon their recent efforts to strengthen
cross-border anti-money laundering and combating the financing of terrorism
(AML/CFT) supervision. The priority next steps are to: (i) develop a
comprehensive institutional risk assessment model; (ii) increase the depth
of the DFSA’s AML/CFT on-site inspections; (iii) further expand its
sanctioning powers, including so as to enable it to levy administrative
fines; and (iv) strengthen international cooperation.

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“The housing market in Denmark is the major link between the economy and
the financial sector. Vulnerabilities due to high household leverage amid
elevated house valuations should be addressed by enhancing the
macroprudential toolbox, reducing overly favorable tax incentives, and
through policies to promote housing supply.

“The labor market is strong, with pressures gradually building in some
sectors of the economy. Increasing benefits to low-income workers would
help alleviate inactivity traps and promote youth employment. Reducing
labor tax rates would increase hours worked. The authorities could also
further incentivize upgrading of technical and digital skills, integrate
migrants, and attract skilled foreign labor.

“Productivity growth remains weak, as in many advanced economies, partly
because of lower investment rates following the crisis. The authorities
should consider making R&D expenditures fully refundable to incentivize
innovation among a larger spectrum of firms. Addressing the debt bias and
improving access to equity finance for SMEs would also promote investment
and help reduce the current account surplus. The complex Danish
institutional framework for competition should be streamlined and

“The IMF Executive Board is expected to discuss Denmark’s economic
developments and policies on June 17, 2019. A staff report is expected to
be published soon afterwards.

The mission thanks the authorities and other counterparts for their
warm hospitality and for candid and high-quality discussions.

IMF Communications Department

PRESS OFFICER: Andreas Adriano

Phone: +1 202 623-7100Email: