2019 OECD ECONOMIC SURVEY OF DENMARK Sustaining prosperity and wellbeing Copenhagen, 15 January 2019 http://www.oecd.org/eco/surveys/economic-survey-denmark.htm
@OECDeconomy @OECD
Key messages
Policy should take advantage of the good economic conditions
Hard decisions are required to further reduce financial vulnerabilities
Boosting productivity is the key challenge to sustain high living standards
The economy is growing after a long recovery GDP per capita Thousand USD, constant prices, 2010 PPP 55
DNK
Other Nordics
Euro area
USA
50
45
40
35
30 2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
Note: Other Nordics is a simple average of Finland, Iceland, Norway and Sweden. Euro area is a weighted average (19 countries). Source: OECD National Accounts database.
Other factors have lifted real incomes and compensated for weak economic growth Real income growth per capita Average annual growth, 2000-2017 4.0
GDP per capita
3.5
Export pric es relativ e to import prices
Net income from abroad
4.0
GNI per capita
3.5
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
0.0
-0.5
-0.5
-1.0
-1.0
-1.5
CHE
BEL
FIN
FRA
Source: OECD National Accounts.
NLD
AUT
DNK
GBR
USA
CAN
NOR
SWE
DEU OECD AUS
IRL
-1.5
Wellbeing ranks at the top in most dimensions OECD Better Life Index Country rankings from 1 (best) to 35 (worst), 2017 20% top performers
60% middle performers
9
9
20% bottom performers
7
4
3
Denmark 3
2
1
14 22
Housing
21
Health status
Income
Education & skills
Source: OECD Better Life Index 2017 database.
Personal Environmental security quality
Jobs & earnings
Civic Social engagement connections & governance
Work & life balance
Subjective well-being
Gender gaps are slowly closing
Labour market participation gap % points 30
% points 30 DNK
Other Nordics
OECD
25
25
20
20
15
15
10
10
5
5
0
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
Note: The participation gap is defined as the difference in labour force participation rates for men and women aged 15-64. Source: OECD Labour Force Statistics.
2016
0
Employment rates for foreign-born are close to OECD averages – but the gaps to natives are sizeable Employment rates by place of birth for age 25-64 2017
Women
Men
%
% Native-born
Foreign-born
Native-born
Foreign-born
90
90
Source: OECD Migration Statistics.
NOR
GBR
SWE
DEU
OECD
DNK
AUT
NLD
FIN
FRA
BEL
GBR
OECD
40
DEU
40
NOR
50
AUT
50
NLD
60
DNK
60
SWE
70
FIN
70
BEL
80
FRA
80
Employment growth has been strong – though not as strong as in other OECD countries Employment growth over the last 5 years %-change of number of persons employed, 2013Q3-2018Q3 % 20 18
Employment growth, 2013Q3-2018Q3
Employment rate, 2013Q3 (right axis)
% 90 85 80
14
75
12
70
10
65
8
60
6
55
4
50
2
45
0
40
NZL LUX IRL ISL HUN ESP ISR TUR SVK GRC AUS PRT MEX SWE USA GBR OECD CHL SVN CZE CHE NLD DNK EST DEU POL LTU JPN KOR BEL CAN ITA AUT FRA NOR FIN LVA
16
Note: Employment rate for age 15-64. Source: OECD Labour Force Statistics.
The labour market is tightening Unemployment and vacancies
Labour shortages % of firms reporting labour shortages
% of labour force 9
8
% 2.2
Unemployment rateยน, left scale Job vacancy rate, right scale
50
Manufacturing
45 2.0
7
1.8
Construction
40
Services
35 30
6
1.6
5
1.4
4
1.2
25 20 15
10 5
3
2005
2007
2009
2011
2013
2015
2017
1.0
0
2005
1. Statistical break in 2016Q1 and 2017Q1. Source: OECD Short-Term Labour market Statistics; Statistics Denmark.
2007
2009
2011
2013
2015
2017
Monetary conditions remain very accommodative – reflecting the peg to the euro Central bank lending rate Certificates of deposit rate % 6 5 4 3 2 1 0 -1
-2
2000
2002
2004
Source: Danmarks Nationalbank.
2006
2008
2010
2012
2014
2016
2018
Growth is projected to continue, but moderate
Economic growth projections Annual percentage change, volume
Gross domestic product (GDP) Private consumption Government consumption Gross fixed capital formation Exports of goods and services Imports of goods and services Unemployment rate Consumer price index
2017 2.3 2.1 0.7 4.6 3.6 3.6 5.7 1.1
2018 1.2 2.5 0.5 7.7 -0.5 2.9 5.2 0.9
2019 1.9 2.2 0.5 1.5 2.8 2.2 5.1 1.8
2020 1.6 2.2 0.4 3.3 3.0 3.8 4.9 2.0
Note: Unemployment rate is % of labour force. A statistical recording of the export of a single pharmaceutical patent has distorted GDP data, boosting growth in 2017 and reducing it in 2018. Source: OECD Economic Outlook 104 database.
A hard Brexit would hit Danish agri-food and manufacturing sectors hard ‌
Reduction in exports to the UK, %
Simulated impact on sectoral exports Size of circles represent the sectoral share of total Danish exports 0
0 Transport & Communication
-5
Trade
-10
Electronic equipment
Manufactures nec
-5 Financial & Insurance
Energy & Natural Resources
-10 Motor vehicles and parts
-15 Machinery and equipment nec
Metals -20
-15
Business services Chemicals
Agri-food -25
-20
Construction & Utilities
-25
Transport equipment Materials manufacturing
-30
-30
-4
-3
-2
-1
0
1
Reduction in total exports, % Source: OECD calculations using the METRO model.
2
3
4
… Making Denmark among the most exposed countries to a hard Brexit Trade with the United Kingdom
Simulated effect of a hard Brexit on exports and GDP B. The effect of Brexit on exports and GDP
% of GDP
A. Trade in goods and services % GDP, 2016 16
DNK
NLD
%%
IRL
12
0
0
-5
-1
-10
-2
-15
-3
-20
-4
8
4
DNK 0
Exports to the UK
Imports from the UK
Source: OECD calculations using the METRO model.
-25
Exports to the UK
NLD
IRL GDP (right scale)
-5
The government budget balance has gradually improved General government budget balance % of GDP 2 1 0 -1 -2 -3 -4
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Note: Extraordinary tax revenues (including a pension restructuring) drive the surpluses in 2014 and 2017. Source: OECD Economic Outlook 104 database.
2020
Ambitious indexation of statutory retirement ages to life expectancy is planned
Age 100 95 90
Planned indexation of statutory retirement ages
Senior employment is rising Employment rate for age 55-64 DNK NOR
Statutory retirement age Early retirement age Life expectancy at age 60
SWE OECD
75 70
85
80
65
75
60
70 65
55
60 55 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060
% 80
50 2010 2011 2012 2013 2014 2015 2016 2017
Source: Danish Government (2018); OECD Labour Force Statistics.
Public finances are sustainable – if retirement ages rise as planned Government budget balance
% of potential GDP 5
4 3
Government gross debt
Baseline with indexation
Baseline with indexation
Fixed statutory retirement ages from 2030
Fixed statutory retirement ages from 2030
% of GDP 100
90 80
2
70
1
60
0
50
-1
40
-2
30
-3
20
-4
10
-5 0 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060
Note: Baseline with indexation to life expectancy assumes that the statutory and early retirement ages are increased by up to one year every five years according to the adopted indexation mechanism. The alternative assumes no rise from 2030 onwards. Source: OECD calculations based on the Danish Government (2018).
Recommendations to sustain inclusive growth and improve public sector efficiency • Gradually tighten fiscal policy to reflect the economic upturn and build fiscal space for a future setback • Increase flexibility in the provision of childcare services to further narrow gender gaps in the labour market • Encourage parents to split parental leave more equally by reserving the share reserved for each parent • Spread best integration practices across municipalities and strengthen co-ordination of services • Improve the integration-training programme in collaboration with social partners and make it permanent • Reform public sector collective bargaining towards broader and higher-level agreements, allowing more bargaining at the local level • Implement the most cost-efficient greenhouse gas emission reductions first
The financial sector is very large Financial corporations Total financial assets by subsector, 2017 % of GDP 1500
% of GDP 2,261 24,063
Monetary financial institutions
Insurance and pension funds
Other financial institutions
1500
Note: Other financial institutions includes non-MMF investment funds. Based on unconsolidated data. Source: OECD Financial Accounts.
LUX
IRL
NLD
GBR
CHE
DNK
JPN
CAN
FRA
ISL
SWE
BEL
USA
DEU
KOR
PRT
ESP
ITA
AUT
NOR
FIN
ISR
0
HUN
250
GRC
250
LVA
500
CZE
500
EST
750
SVK
750
SVN
1000
POL
1000
LTU
1250
TUR
1250
0
Household gross debt has decreased but is still very high Household gross debt and net worth % of gross household disposable income
Across countries
Over time 350
350
300
300
Household gross debt Total net worth of households (right scale)
900 800 700
250
250
200
200
500
150
150
400
100
100
50
300 200
50
2000 2002 2004 2006 2008 2010 2012 2014 2016
Source: OECD Economic Outlook database.
0
100 LVA HUN SVN POL CZE ITA SVK EST DEU AUT ISR GRC USA FRA JPN BEL ESP PRT FIN GBR IRL CAN KOR AUS SWE NOR NLD DNK
0
600
0
House prices have risen rapidly in Copenhagen Real house price index 2000=100 320
Owner-occupied flats
One-family houses
270
220
170
120
70
2000
2002
2004
2006
Note: Deflated by private consumption deflator. Source: Statistics Denmark.
2008
2010
2012
2014
2016
2018
Taxation of household capital income favours owner-occupied housing Marginal effective tax rates across asset types Average-rate tax payer, 2016 % 70
DNK
60
% 70
OECD median country
60
50
50
40
40
30
30
20
20
10
10
0
0
-10
-10
-20
-20
Bank deposits
Corporate bonds
Shares
Private pensions
Owner occupied property
Note: The marginal effective tax rate summarises the tax on investing one additional currency unit across different assets with an expected holding period of five years (20 years for pension funds and housing). The tax rates are adjusted for country-specific inflation over the period 2011-16. Source: OECD (2018), Taxation of household savings.
Recommendations to strengthen resilience of households and the financial sector • Reduce deductibility of interest expenses in personal income taxation • Deregulate the rental market and remove favourable conditions for parents to buy-to-let flats to their children • Review the pension and tax system and implement reform to ease personal financial planning • Improve prudential supervision and international collaboration by joining the European Banking Union • Increase scrutiny and implement more severe penalties for money-laundering activities
High digitalisation in firms has not (yet) boosted productivity growth
% 70
Firms with high digital intensity
Labour productivity growth
2017
Total economy, annualised growth, 2000-2017 4.0
60
3.5
50
3.0 2.5
40
2.0
30
1.5
20
1.0
0
0.0
LUX NOR BEL NLD CHE FRA GBR CAN DNK JPN DEU FIN AUT OECD AUS SWE USA ISL IRL
0.5
LVA ITA GRC POL HUN FRA SVK CZE EST SVN IRL LUX EU PRT AUT ESP DEU LTU SWE NOR BEL FIN NLD DNK
10
Source: European Commission, Digital Scoreboard 2017; OECD Productivity database.
Productivity growth is lagging behind in services
%
5
Over time
Across countries
Annualised labour productivity growth
Annualised labour productivity growth, 2000-2015
%
1990-2000
2000-2010
2010-2017
DNK
Other Nordics
OECD
USA
5
4
4
3
3
2
2
1
1
0
Business economy
Manufacturing
Private sector servic es
Private sector servic es
Less knowledge- Knowledge-intensiv e intensive services servic es
Source: OECD Productivity database and OECD calculations based on OECD STAN database.
0
Mark-ups are stable on average, but on the rise in certain sectors Average mark-up rate in Danish firms Main sector of activity 1.5
Total economy ICT services
1.4
2
Retail trade Pharmaceutical products (right scale)
1.8
1.3
1.6
1.2
1.4
1.1
1.2
1
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Note: Mark-up rates are calculated at the industry level as the ratio between operating surplus and input costs. Source: Égert and Vindics (2018).
2015
1
Business investments are picking up and shifting towards intangibles Total business investments % of GDP 18 17
DNK
SWE
DEU
16
Composition of business investments
% of GDP
Intellectual property products Buildings and structures Machinery, ICT and transport equipment
8 7
6
15
14
5
13
4
12
3
11
2
10
9
2000 2002 2004 2006 2008 2010 2012 2014 2016
Source: OECD Economic Outlook database; Statistics Denmark.
2000 2002 2004 2006 2008 2010 2012 2014 2016
1
The average tax wedge and the corporate income tax rate are close to OECD averages
% 60
Average tax wedge
Corporate income tax rate
2017
2018
%
40 35
50
30 40
25
30
20 15
20
10
10
CHE IRL CAN DEU GBR LUX FIN ISL USA OECD DNK SWE NOR JPN AUT NLD BEL AUS FRA
CHE IRL AUS CAN GBR USA JPN ISL OECD NOR DNK LUX NLD SWE FIN AUT FRA DEU BEL
0
5
Note: The average tax wedge comprises income taxes plus employee and employer social security contributions for a single household with average wage. Source: OECD Tax database
0
Top marginal tax rates on labour and capital income are very high
Ov erall PIT+CIT rate on dividend income, %, 2017 70
FRA
65 60
IRL
USA
55
KOR
50 45
MEX
40
NZL
35
CHL
CZE
30
LVA EST
20 20
LUX
GBR NOR
DEU AUS
AUT ESP OECD ISR CHE ISL TUR
POL
25
30
35
65 60
CAN DNK
NLD
JPN
ITA GRC
FIN
BEL
55
PRT SWE
50
SVN
40
45
35 30
SVK HUN
25
70
25 20 40
45
50
55 60 65 70 Top marginal tax rate on labour income, %, 2017
Note: The top marginal tax rate includes personal income tax and employee social security contributions (All-in rate). The overall personal and corporate income tax (PIT+CIT) rate on dividend income reports the overall tax rate on distributed profit, Taking into account taxation prior to distribution and at the household level, showing the highest rate. Source: OECD Tax database.
Business R&D is highly concentrated in pharmaceuticals and biotechnology Danish companies among the world top 1000 R&D investors 2017 world ranking in parenthesis EUR million 0
250
500
750
1000
1250
1500
1750
NOVO NORDISK (68) DANSKE BANK (287) H LUNDBECK (330) DANFOSS (383) LEO PHARMA (441)
NOVOZYMES (468) VESTAS WIND SYSTEMS (487) FERRING PHARMACEUTICALS (654) GRUNDFOS (702) WILLIAM DEMANT (890) GN STORE NORD (950)
Note: Annual R&D spending at the corporate group level. Pharmaceuticals and biotechnology companies in red. Source: EU R&D Scoreboard data.
2000
Public support to business R&D is relative low – even after reform Direct government funding of business R&D and tax incentives for R&D, 2015 or latest available year % of GDP 0.5
% of GDP 0.5 Direct government funding of BERD
Tax incentive support for BERD
0.4
0.4
0.3
0.3
0.2
Estimate after 2017 reform
0.2 0.1
0.0
0.0
LVA CHL SVK EST LTU GRC CHE LUX MEX POL DEU FIN DNK NZL ESP DNK TUR CZE ITA ISR JPN PRT CAN ISL SWE SVN AUS NLD NOR USA GBR AUT HUN KOR IRL BEL FRA
0.1
Source: OECD, R&D Tax Incentive Indicators.
The share of science (STEM) graduates is low
Tertiary educated adults with STEM as a % of 25-64 year old non-students, 2015
Note: STEM refers to science, technology, engineering and mathematical subjects. Source: OECD Survey of Adult Skills (PIAAC).
CZE
KOR
DEU
SVK
CHL
EST
AUT
0
CAN
0
ISR
5
ESP
5 POL
10
SVN
10
FRA
15
FIN
15
GRC
20
IRL
20
NZL
25
NOR
25
SWE
30
DNK
30
ITA
35
TUR
35
JPN
40
USA
40
AUS
45
NLD
45
Labour market returns to ICT tasks – and skills in general – are relatively low
% 5
Returns to ICT tasks¹
% 25
Returns to skills² (right scale)
USA
KOR
JPN
IRL
CAN
EST
NLD
GBR
CZE
DEU
FIN
BEL
LTU
ESP
NZL
SVK
AUT
SWE
AUS
CHL
0
POL
0
NOR
5
SVN
1
FRA
10
ITA
2
GRC
15
DNK
3
TUR
20
ISR
4
1. Percentage change in hourly wages for a 10% increase in ICT task intensity. Labour market returns to task intensities are based on OLS wage regressions (Mincer equations) using data from the OECD Survey of Adult Skills (PIAAC) (Grundke et al. (2018). 2. Percent increase in hourly wages for a standard deviation increase in numeracy. Data show the coefficients on numeracy scores from country-specific regressions of log hourly wages (including bonuses) of wage and salary earners (in PPP corrected USD) on proficiency scores standardised at the country level. Source: OECD STI Scoreboard 2017; OECD Employment Outlook 2015.
Dependence on foreign workers has increased substantially Inflow of migrants with a work purpose Thousand 25
EU
non-EU
Thousand 25
20
20
15
15
10
10
5
5
0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: Statistics Denmark.
0
Recommendations to boost productivity growth (1)
Strengthen incentives through the tax system • Reduce top marginal tax rates on labour and capital income • Withdraw reduced inheritance taxation of family-owned businesses • Implement an allowance for corporate equity (ACE) • Broaden public support to business R&D through welldesigned R&D grants and tax credits for incremental R&D expenses
Recommendations to boost productivity growth (2) Refining the competition framework • Provide greater power to competition authorities to impose administrative fines and structural remedies within constitutional constraints • Develop clearer standards for exemptions from the Competition Act and involve competition authorities in their determination Ensuring supply of the right skills • Strengthen incentives by reducing student grants for tertiary education and relying more on students loans • Assess whether current visa schemes for non-EU workers sufficiently address skill needs and consider simplifying entry procedures
For more information Disclaimers: The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.
http://www.oecd.org/eco/surveys/economic-survey-denmark.htm
Follow us on twitter: OECD Economics OECD