Macroeconomic imbalances, Denmark 2013.
Date: 2013-08-09
Institutions: Directorate-General for Economic and Financial Affairs
Subjects: Denmark, debt, economic forecasting, economic indicator, labour market, macroeconomics, public finance

ISSN 1725-3209

EUROPEAN 
ECONOMY

Occasional Papers 133 | April 2013

                        Macroeconomic Imbalances 
Denmark 2013

Economic and 
Financial Aﬀ airs

Occasional Papers are written by the Staff of the Directorate-General for Economic and 
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intended to increase awareness of the technical work being done by the staff and cover a 
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Reproduction is authorised provided the source is acknowledged. 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
European Commission 

Directorate-General for Economic and Financial Affairs 

Macroeconomic Imbalances –  

Denmark 2013 

EUROPEAN ECONOMY 

Occasional Papers 133 

 
 
 
 
 
 
 
 
 
 
 
 
 
ACKNOWLEDGEMENTS 

This  report  was  prepared  in  the  Directorate  General  for  Economic  and  Financial  Affairs  under  the 
direction of Servaas Deroose, deputy director-general, Jürgen Kröger and Anne Bucher, directors. 

The main contributors were Joanna Leszczuk, Louise Skouby and Zinovia Tsikalaki. Other contributors 
were  Mary  McCarthy,  Carlos  Cuerpo  Caballero,  Jonas  Fischer,  Jakob  Friis,  Joern  Griesse,  Daniel 
Kosicki, Peter Pontuch.  

Comments on the report would be gratefully received and should be sent, by mail or e-mail to: 

Peter Weiss 
European Commission, 
Unit F.2 
CHAR 12/173 
B-1049 Brussels. 
e-mail: Peter.Weiss@ec.europa.eu 

The cut-off date for this report was 12 March 2013 

ii 

 
 
 
Results  of  in-depth  reviews  under  Regulation  (EU)  No  1176/2011  on  the  prevention  and  correction  of 
macroeconomic imbalances 

DENMARK  is  experiencing  macroeconomic  imbalances,  which  deserve  monitoring  and  policy  action.  In 
particular, the continuing adjustment in the housing market and the high level of indebtedness in the household 
and private sector as well as drivers of external competitiveness, deserve continued attention. 

More  specifically,  there  has  been  a  weak  export  performance  linked  to  a  rise  in  unit  labour  costs  due  to  high 
wage growth and, in particular, weak productivity growth. Furthermore, the weak export performance is partially 
due to an unfavourable export market mix. In recent years there have been some improvements in this regard, 
but  at  the  current  juncture  it  is  difficult  to  assess  their  sustainability  and  durability.  Taking  into  account  that 
Denmark has been experiencing high and rising current account surpluses, these trends do not point to short term 
risks. Low interest rates and an acceleration of house prices in the years prior to the financial crisis contributed to 
a surge of household debt to unsustainable levels. While a reversal of this trend has been set in motion and risks 
are also attenuated by high net asset positions of households, the correction process will have to stretch over a 
significant period of time. This poses potential risks to economic and financial stability. 

Excerpt of country-specific findings on Denmark, COM(2013) 199 final, 10.4.2013. 

3 

 
 
 
 
 
 
 
Executive Summary and Conclusions 

1. 

Introduction 

2.  Macroeconomic Situation and Potential Imbalances 

2.1.  Macroeconomic scene setter 

2.2. 

Sustainability of external positions 

2.3.  Competitiveness and trade performance 

2.4.  Private sector indebtedness 

2.5.  Asset market developments 

3. 

In-Depth Analysis of Selected Topics 

3.1.  Competitiveness and export performance 

3.1.1.  Cost competitiveness and changes in unit labour cost 

3.1.2.  Export market shares and geographical specialisation of exports 

3.1.3.  Product market composition and developments in exports of goods 

3.2.  Household debt 

3.2.1.  Risks to financial stability 

3.2.2.  Risks to economic stability 

3.2.3.  Measures taken to reduce risks in the coming years 

4. 

Policy Challenges 

References 

LIST OF TABLES 

3.2.  Credit supply conditions, selected countries and EU average 

3.1.  Credit demand conditions, selected countries and EU average 

LIST OF GRAPHS 

2.2a.  Net international investment position (NIIP) changes 

2.2b.  Net lending/borrowing by sector 

2.1a.  Decomposition of the current account balance 

2.1b.  Components of the net international investment position (NIIP) 

2.3a.  Decomposition of rate of change of EMS for goods (in value terms) 

2.3b.  Breakdown of the rate of change of EMS (in value terms) by goods and services 

7 

9 

11 

11 

11 

12 

14 

15 

17 

17 

18 

19 

21 

23 

23 

25 

28 

31 

33 

27 

27 

12 

12 

12 

12 

13 

13 

5 

 
 
 
 
2.4.  Evolution of nominal unit labour costs and its components compared to IC35 

2.5a.  Sectoral decomposition of total gross debt (Private sector EA17) 

2.5b.  Net financial assets of households 

2.6.  Real house price cycle, upswing and correction against different benchmarks 

2.7a.  Evolution of House Price Index and MFI Loans for House Purchase 

2.7b.  Price to disposable income (2005=100), E27 

3.1a.  Growth in nominal exports relative to global growth in exports (Shift-share analysis) 

3.1b.  Share of Danish exports of services in total world exports 

3.2a.  Rate of change of nominal and real effective exchange rates (HICP- and ULC-based) vis-à-

vis IC35 

3.2b.  Developments in labour wage index 

3.3.  Rate of change of nominal ULC 

3.4a.  Goods: Rate of change of exports to the rest of the world (in value terms), selected 

countries 

3.4b.  Services: Rate of change of exports to the rest of the world (in value terms), selected 

countries 

3.5a.  Export dependency on the EU - goods (in value terms) 

3.5b.  Export dependency on the EU - services (in value terms) 

3.6.  Exports to BRICS as percentage of total exports goods (in values) 

3.7a.  Composition of goods exported, 2005 and 2001 (values) 

3.7b.  Share of high- and low-tech products in manufacturing exports (values) 

3.7c.  Share of high- and low-tech products in manufacturing exports (volumes) 

3.8a.  Rate of change of low-tech exports to the rest of to the world (in value terms) 

3.8b.  Rate of change of low-tech exports to the rest of the world (in volume terms) 

3.9a.  Rate of change of high-tech exports to the rest of the world (in value terms) 

3.9b.  Rate of change of high-tech exports to extra- EU countries (in value terms) 

3.10a. Foreclosures 

3.10b. Interest burden of households and non-financial corporations 

3.11a. Household debt ratios 

3.11b. Indicators of over-indebtedness, selected countries 

3.12a. Stress map of credit demand conditions 

3.12b. Lending demand and supply pressures 

3.12c. Stress map of credit supply conditions 

3.13a. Deleveraging forces in the Danish household sector, actual debt and sustainable debt 

3.13b. Household debt ratio and volatility in private consumption 

13 

15 

15 

15 

16 

16 

17 

17 

19 

19 

19 

20 

20 

21 

21 

21 

22 

22 

22 

22 

22 

23 

23 

24 

24 

25 

25 

26 

26 

26 

28 

28 

6 

 
 
 
 
 
EXECUTIVE SUMMARY AND CONCLUSIONS 

In May 2012, the Commission concluded that Denmark was experiencing macroeconomic imbalances, in 
particular as regards developments related to external competitiveness and household indebtedness. In the 
Alert Mechanism Report (AMR) published on 28 November 2012, the Commission found it useful, also 
taking  into  account  the  identification  of  an  imbalance  in  May,  to  examine  further  the  persistence  of 
imbalances or their unwinding. To this end this In-Depth Review (IDR) takes a broad view of the Danish 
economy in line with the scope of the surveillance under the Macroeconomic Imbalance Procedure (MIP). 
The main observations and findings from this analysis are: 

•  The continued losses in export market shares in goods seem to be linked to the deterioration of 
Denmark's  cost  competitiveness  over  the  last  decade.  Denmark  is  a  country  with  a  significant 
current account surplus, which is forecast to persist. At the same time, Denmark experienced sustained 
losses in export market shares in goods over the period 2000-2010. These losses were larger than both 
the weighted average losses of other EU Member States and the corresponding losses of neighbouring 
countries such as Germany or Sweden. The losses appear to be linked to a deterioration in Denmark's 
cost  competitiveness  and  recent  improvements  in  this  regard  have  not  yet  been  sufficient  to 
compensate for the cumulative losses over the past decade. 

•  Denmark's  losses  in  export  market  shares  relative  to  its  main  competitors  are  also  due  to  an 
unfavourable geographical destination of its exports. Continued losses of market shares in the face 
of the recent improvements in cost competitiveness suggest that non-cost-related factors may also play 
a role. One of these factors is the geographical destination of Danish exports, which do not seem to be 
sufficiently represented in high-growth emerging markets. On the other hand, the product composition 
of Danish exports has partly counterbalanced the impact of the unfavourable geographical destination. 

•  The  deterioration  in  Denmark's  cost  competitiveness  over  the  past  decade  reflects  both 
relatively high wage growth and weak productivity growth compared with its trading partners. 
Furthermore,  nominal  effective  exchange  rate  movements  have  been  unfavourable  for  Danish 
competitiveness. While the effect of wage growth has been attenuated to some extent by favourable 
terms of trade developments, the low productivity growth has been a cause for concern. The factors 
underlying the sustained weak performance of productivity are not yet fully understood.  

•  Unit  labour  costs  have  fallen  in  more  recent  years,  partly  reflecting  moderating  wage  growth 
but also a cyclical catch-up in productivity growth. In the coming years, wage growth in Denmark 
is  expected  to  remain  below  that  of  its  competitors,  thereby  contributing  positively  to  cost 
competitiveness.  At  the  same  time,  the  government  has  taken  initiatives  to  address  the  problem  of 
weak  productivity  growth.  Continued  focus  on  wage  moderation  and  raising  productivity  growth, 
resulting  in  further  improvements  in  cost  competitiveness,  should  help  limit  the  losses  in  export 
market shares in goods in the future.  

•  High  household  gross  debt  is  a  structural  feature  of  the  Danish  economy  but  concerns  have 
arisen due to developments in the housing market, which caused the debt to move beyond levels 
that  can  be  explained  by  structural  factors.  Furthermore,  the  composition  of  mortgage  loans  has 
changed since 2003, with deferred-instalment (i.e. instalment-free in the initial years of the loan) and 
adjustable-rate  loans  gaining  in  popularity  over  fixed-rate  loans  with  instalment.  Thus,  for  a  given 
debt level, households are now more exposed to interest rates hikes and fluctuations in property prices 
than they were a decade ago. Consequently, the 2012 In-Depth Review concluded that the household 
debt level in the aftermath of the house price correction represented an imbalance that posed increased 
economic  risks,  in  particular  through  potential  effects  on  the  financial  sector  and  on  private 
consumption.  This  conclusion  remains  valid  even  though  the  analysis  in  the  present  review  notes 
certain improvements. 

7 

 
•  In  the  current  fragile  financial  and  macro-economic  environment  the  high  level  and  the 
composition  of  mortgage  debt  have  increased  the  exposure  of  the  financial  system  to  adverse 
developments. Yet recent research on Danish household debt indicates that risks to financial stability 
from household indebtedness are relatively contained. This is due, in particular, to the large proportion 
of overall household debt held by high income households which are better equipped to service their 
debt  in  the  event  of  rising  interest  rates.  Consequently,  even  if  interest  rates  were  to  increase  quite 
substantially,  the  potential  amount  of  loans  that  households  would  not  be  able  to  service  does  not 
seem  to  pose  a  threat  to  the  financial  stability  of  the  economy.  Nevertheless,  the  simultaneous 
materialisation of risk factors such as rising interest rates, a further fall in house prices and continued 
low  growth and rising unemployment,  while of low probability, could provide a testing  background 
for the mortgage system in Denmark. 

•  Housing market developments and high debt also have affected the economy's macroeconomic 
performance.  A  consequence  of  excessive  swings  in  house  prices  and  high  debt  has  been  large 
fluctuations  in  private  consumption,  which  are  currently  constraining  the  economy's  capacity  to 
recover as households are deleveraging. However, since the household debt imbalance appears to be 
in the process of unwinding and the impact of the deleveraging process on the economy has remained 
relatively contained the existence of imbalances does not seem to be a cause for significant concerns 
at this juncture.  

This  In-Depth  Review  also  discusses  the  policy  challenges  stemming  from  these  developments  and 
possible policy responses. A number of elements can be considered: 

•  Concerning the challenge of improving external competitiveness a number of different issues can be 
considered  in  relation  to  price-cost  competitiveness  factors  and  non-price  cost  competitiveness 
elements. The key aspect to safeguarding competitiveness is to ensure that wage cost developments do 
not  contribute  to  a  deterioration  of  the  external  price/cost  competitiveness  position  and  that  Danish 
exports  show  flexibility  and  adaptability  in  order  to  be  able  to  adjust  to  future  global  demand 
developments,  in  terms  of  both  product  composition  and  geographical  destination.  Improving 
productivity growth by, for instance, removing obstacles to competition, in particular in the services 
sector,  and  by  removing  barriers  for  firms’  use  of  knowledge  and  education,  will  also  be  of 
importance. 

•  Concerning the challenge linked to the high level of household debt and the implications for the real 
economy, a number of measures can be considered to strengthen the stability of the housing market 
and financial system in the medium term. This In-Depth Review investigates the recent and planned 
measures  that  Danish  authorities  and  the  mortgage  credit  institutes  have  taken  to  improve  the 
robustness of the mortgage credit system, to limit policy incentives to take up debt and to reduce the 
risk of an unsustainable build-up of household debts. While these measures go in the right direction, 
close monitoring will be required in order to judge whether they have the desired impact. 

8 

 
 
 
1. 

INTRODUCTION 

On 28 November 2012, the European Commission presented its second Alert Mechanism Report (AMR), 
prepared  in  accordance  with  Article  3  of  Regulation  (EU)  No.  1176/2011  on  the  prevention  and 
correction of macroeconomic imbalances. The AMR serves as an initial screening device, which helps to 
identify Member States that  warrant  further in depth analysis to determine  whether imbalances exist or 
risk  emerging.  According  to  Article  5  of  Regulation  No.  1176/2011,  these  country-specific  “In-Depth 
Reviews” (IDR) should examine the nature, origin and severity of  macroeconomic developments in the 
Member State concerned, which constitute, or could lead to, imbalances. On the basis of this analysis, the 
Commission will establish whether it considers that an imbalance exists and what type of follow-up it will 
recommend to the Council. 

This is the second IDR for Denmark. Based on the previous IDR, which was published on 30 May 2012, 
the Commission concluded that Denmark was experiencing macroeconomic imbalances, in particular as 
regards  developments  related  to  external  competitiveness  and  indebtedness.  Overall,  in  the  AMR  the 
Commission  found  it  useful,  also  taking  into  account  the  identification  of  an  imbalance  in  May,  to 
examine  further  the  persistence  of  imbalances  or  their  unwinding.  To  this  end,  this  IDR  takes  a  broad 
view of the Danish economy in line with the scope of surveillance under the Macroeconomic Imbalance 
Procedure (MIP). 

Against this background, Section 2 of this In-Depth Review looks more in detail into these developments 
covering  both  the  external  and  internal  dimensions,  followed  by  a  specific  focus  on  external 
competitiveness and household debt in Section 3. Section 4 discusses policy considerations. 

9 

 
 
2.  MACROECONOMIC SITUATION AND POTENTIAL 

IMBALANCES 

2.1.  MACROECONOMIC SCENE SETTER 

recorded 

economy 

The  Danish 
almost 
uninterrupted growth between 1995 and 2008, with 
an annual average  growth rate of around 2%. The 
economy  experienced  a  period  of  overheating  in 
2006-2007, caused by accelerating investment and 
private  consumption  on 
the  back  of  credit 
expansion  and  surging  house  prices.  Labour 
market  bottlenecks  and 
labour  market 
conditions  in  general  led  to  high  wage  growth 
while  productivity  growth  fell.  Since  the  mid-
1990s,  slow  productivity  growth  and  relatively 
to  a 
high  wage  growth  have  contributed 
deterioration  in  cost  competitiveness  as  measured 
by relative unit labour costs. This, in turn, is likely 
to  be  an  important  factor  behind  the  sustained 
losses in export market shares over the last decade.  

tight 

The  Danish  economy  was  already  slowing  down 
before  the  onset  of  the  financial  crisis,  amidst  a 
correction  in  the  real  estate  market.  As  a  result, 
output fell by almost 7½% between mid-2008 and 
mid-2009  as  investment  and  exports  collapsed, 
while  private  consumption  contracted  along  with 
an increase in  the  unemployment rate and a sharp 
fall  in  house  prices.  House  prices  fell  by  around 
20%  in  real  terms  between  2007  and  2009  and, 
after stabilising in 2010, dropped by an additional 
6% in 2011, reaching levels last seen in 2004.  

solid 

despite 

exports, 

The improvement of the Danish economy in 2010 
was due mainly to fiscal-stimulus measures, export 
growth  on  the  back  of  a  rebound  of  external 
demand and a turnaround in the inventory cycle. In 
2011, 
overall 
performance of the Danish economy  was subdued 
due to deleveraging efforts among households and 
firms,  with  GDP  growth  reaching  only  1%.  The 
sovereign  debt  crisis  has,  however,  led  to  strong 
international  demand  for  highly-rated  mortgage 
bonds  and  government  securities  from  Denmark, 
resulting  in  low  interest  rates,  which  currently 
underpin a still very fragile housing market. 

the 

Following  the  downturn  in  2012,  real  GDP  is 
expected  to  accelerate  in  2013  and  2014  on  the 
back  of  the  projected  recovery  of  the  global 
economy.  Export  growth  is  expected  to  pick  up 

increase 

is  projected 

in  household 

slowly  in  2013  and  to  grow  more  substantially  in 
2014. Tight credit conditions are likely to continue 
to  affect  private 
investment,  while  public 
investment  is  dragged  down  by  consolidation 
efforts.  Private  consumption 
to 
accelerate in the course of 2013, driven mostly by 
an 
to 
repayment  of  contributions  from  the  voluntary 
early retirement pension scheme as well as the tax 
reform and lower interest payments). Nevertheless, 
it is foreseen that the stagnating labour market will 
continue 
spending. 
to  weigh  on  consumer 
Furthermore,  due  the  housing  market  situation 
households  are  expected  to  keep  on  deleveraging 
and increase savings. 

liquidity 

(due 

2.2. 

SUSTAINABILITY OF EXTERNAL POSITIONS 

Denmark's  current  account  surplus,  which  has 
persisted  for  more  than  a  decade,  experienced  a 
significant  widening  from the start of the crisis in 
2008  and  peaked  at  5.9%  of  GDP  in  2010.  This 
was due to the performance of both the balance of 
goods  and  services  and  the  balance  of  primary 
income (Graph 2.1a).  

The  high  and  rising  current  account  surpluses 
registered  in  recent  years  contrast  somewhat  with 
the  observed  pronounced  losses  in  export  market 
shares  (EMS)  over  the  last  decade.  These  losses 
therefore  have  to  be  qualified  in  several  respects. 
First, the EMS losses that have occurred for goods 
were  partly  compensated  by  gains  in  EMS  for 
services.  Second,  while  the  volume  of  goods 
exports did not develop very dynamically, this was 
partly  offset  by  favourable  export  prices,  as 
Denmark was able to charge relatively high prices 
for its goods exports. Third, since 2008, the losses 
in  EMS  have  been  accompanied  by  relatively 
moderate import growth, reflecting a sharp rise in 
private sector savings,  which  more than offset the 
deterioration in the general government balance. 

Under  the  impact  of  the  high  current  account 
surpluses  since  2008, 
international 
investment  position  (NIIP)  has  seen  a  strong 
improvement. Measured as percentage of GDP, the 
NIIP  increased  from  -5.1%  in  2008  to  +27.8%  in 
2011. The improvement in the NIIP has primarily 

the  net 

11 

 
European Commission 

Macroeconomic Imbalances - Denmark 2013 

Graph 2.1a:Decomposition of the current 
account balance

10

8

6

4

2

0

-2

-4

-6

P
D
G

f
o
%

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12*

Capital account (KA)
Current transfers
Income balance
  Trade balance - services
  Trade balance - goods
Trade balance
Current account balance (CA)
Net lending/borrowing (CA+KA)

Source: Commission services

occurred  through  a  rise  in  net  direct  investments 
and  changes  in  reserves  (Graph  2.1b).    The 
changes  in  the  NIIP  mainly  reflect  valuation 
changes  and,  to  a  lesser  extent,  changes  in  net 
interests and dividends (investment income effect) 
and net transactions (Graph 2.2a).  

Overall,  the  improvement  in  the  current  account 
balance  over  the  last  few  years  reflects  increased 
savings  in  the  private  sector,  which  more  than 
offset  the  deterioration  in  the  general  government 
balance  (Graph  2.2b),  rather  than  a  stronger 
competitive  performance.  This  suggests  that,  as 

Graph 2.1b:Components of the net 
international investment position (NIIP)

100

P
D
G

f
o
%

50

0

-50

-100

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 1112*

Net portfolio investment
Changes in reserves (net)
Other investment (net)
Net direct investment
Net financial derivatives
Net external debt (neg. sign)
Net int'l investment position (NIIP)
Marketable debt (portfolio debt instr. and other investment, net)

domestic demand recovers and the private sector's 
propensity  to  spend  increases,  import  growth  will 
accelerate, 
lower  current  account 
surpluses. 

leading 

to 

2.3.  COMPETITIVENESS 

AND 

TRADE 

PERFORMANCE 

According to the MIP scoreboard, the loss in EMS 
over the five -year period 2007-11 was of the same 
order  of  magnitude  as  over  2006-10, 
thus 
remaining well above the threshold of 6 percentage 
points. However, although still declining, the pace 

Graph 2.2a:Net international investment 
position (NIIP) changes

Graph 2.2b:Net lending/borrowing by sector

)

%

(

y
-
o
-
y
e
g
n
a
h
c

f
o
e
t
a
R

20

15

10

5

0

-5

-10

05Q4 06Q4 07Q4 08Q4 09Q4 10Q4 11Q4

Valuation changes
Net transaction effect (rest FA bal.)
Investment income effect
Nominal growth effect
Change in NIIP (y-o-y)

Source: Commission services

12 

P
D
G

f
o
%

10

8

6

4

2

0

-2

-4

-6

-8

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Households and NPISH
Corporations

General government
Total economy

 
 
 
 
 
 
 
 
 
 
 
 
 
 
of  the  contraction  slowed  substantially  between 
2010  and  2011,  with  the  annual  rate  of  change 
improving  from  -10.6% in 2010 to -4.0% in 2011 
(Graph 2.3a). Both goods and services contributed 
to  this  improvement  (Graph  2.3b).  The  relatively 
good performance of merchandise exports was due 
partly to the large share of non-cyclical goods such 
as pharmaceuticals, food and food-related products 
in Denmark's overall merchandise exports.  

As identified in the In-Depth Review of May 2012, 
Denmark's  problem  of  competitiveness  and  weak 
performance  in  exports  of  goods  during  the  last 
decade  are  linked  to  the  pronounced  rise  in  unit 
labour costs (ULC). Between the end of the 1990's 
and  2009,  the  rise  in  ULC  in  Denmark  exceeded 
that of its main competitor countries (1). Recently, 
however,  Danish  cost  competitiveness  has  been 
improving.  Nominal  ULC  decreased  in  2010  and 
increased only slightly in 2011 and the indicator in 
the  MIP  scoreboard,  i.e.  the  percentage  change 
over the past three years, fell from 11.0% in 2010 
to  4.7%  in  2011,  which  is  well  below  the 
indicative scoreboard threshold (Graph 2.4).  

drivers 

understand 

To 
affecting 
the 
competitiveness of Denmark, non-cost factors need 
to be examined in addition to cost components. A 
more  comprehensive  view  of  the  evolution  of 
export market shares can be provided by analysing 
the  product  market 
the 
geographic  destination  of  Danish  exports,  as 
presented in section 3. 

composition 

and 

(1)  In  this  review,  Germany,  the  Netherlands,  Sweden  and 
Finland  are  chosen  as  the  main  competitor  countries  of 
Denmark. 

2. Macroeconomic Situation and Potential Imbalances 

Graph 2.3a:Decomposition of rate of change 
of EMS for goods (in value terms)

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Denominator: World Export growth (neg. sign)
Numerator: Export growth
EMS growth rate

Graph 2.3b:Breakdown of the rate of change 
of EMS (in value terms) by goods and 
services

)

%

(

y
-
o
-
y
e
g
n
a
h
c

f
o
e
t
a
R

30

20

10

0

-10

-20

-30

-40

)

%

(

y
-
o
-
y
e
g
n
a
h
c

f
o
e
t
a
R

10

5

0

-5

-10

-15

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Contribution to EMS: goods
Contribution to EMS: services
Export market share growth yoy

Source: Commission services

Graph 2.4:Evolution of nominal unit labour 
costs and its components compared to IC35

)

%

(

y
-
o
-
y
e
g
n
a
h
c

f
o
e
t
a
R

8

6

4

2

0

-2

-4

-6

98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Inflation (GDP deflator growth)
Real Compensation per Employee
Productivity Contribution (negative sign)
Nominal unit labour cost
ULC in Euro Area

Source: Commission services 

13 

 
                                                           
 
 
 
 
 
 
 
 
 
 
 
 
 
 
debt  is  primarily  concentrated  among  households 
with  the  highest  incomes.  Loans  with  adjustable 
interest rates are also more likely to be chosen by 
households  with  the  highest  incomes  but  also  by 
households  with  the  lowest  incomes.  However, 
only approximately 1% of the total mortgage debt 
has been issued to the 10% of households with the 
lowest  income.  In  addition  to  that,  the  share  of 
lower  income  households  who  report  having  to 
draw on their savings or having to run into debt to 
keep  up  current  expenditures  fell  over  the  year  to 
spring  2012. (3)  The  report  concludes  that  the 
distribution  of  mortgage  loans  mitigates  the  risks 
of non-repayment. 

The  2012  In-Depth  Review  concluded  that  the 
household debt level in the aftermath of the house 
price  correction  represented  an  imbalance  posing 
increased  economic  risks,  in  particular  through 
potential  effects  operating  via  the  financial  sector 
(potential  increases  in  non-performing  loans)  and 
private 
for 
deleveraging  due  to  erosion  of  asset  values  or  a 
high debt-service burden). Section 3 of this review 
investigates  whether  this  imbalance  is  unwinding 
by  examining  the  results  of  recent  research  that 
allows  for  a  better  assessment  of  the  related 
potential risks. 

consumption 

need 

(e.g. 

the 

(3)  For  more  information  on  the  financial  stress  indicator  see 
chapter "Key features of the current European employment 
and 
report 
in 
Employment  and  Social  Developments  in  Europe  2012.

the  Commission 

situation" 

social 

European Commission 

Macroeconomic Imbalances - Denmark 2013 

2.4. 

PRIVATE SECTOR INDEBTEDNESS 

in 

upsurge 

the  debt 

accompanying 

As  a  result  of  the  strong  rise  in  house  prices  and 
residential 
the 
investment, 
level  of  Denmark's 
households  increased  markedly,  by  52%,  between 
2001  and  2009.  The  debt  level  of  non-financial 
corporations also rose over the same period, but at 
a more moderate pace of 29%. On the whole, gross 
private  sector  debt (2)  increased  by  42%  between 
2001 and 2009, compared  with an average rise of 
31% for the EU as a whole. 

Although  gross  private  sector  debt  diminished  in 
both  2010  and  2011,  reaching  238%  of  GDP  in 
2011  (from  251%  of  GDP  in  2009),  this  still 
exceeds  significantly  the  indicative  threshold  of 
the  MIP  scoreboard.  Moreover,  the  drop  was 
mainly  due  to  the  decline  in  the  indebtedness  of 
non-financial  corporations,  which 
from 
104.3% of GDP in 2009 to 96.1% of GDP in 2011 
(Graph  2.5a).  Similar  trend  may  be  observed  for 
the household debt ratio, which started to decrease 
slowly from a peak in 2009.  

fell 

As  mentioned  in  the  previous  In-Depth  Review, 
high  household  debt  is  to  a  significant  extent  a 
structural  feature  of  the  Danish  economy,  with 
household  assets  exceeding  liabilities.  Although 
the  net  financial  asset  position  of  households 
remains  comfortable,  real  estate  and  pension 
savings  are  highly  illiquid  assets  while  further 
corrections  in  the  housing  market  pose  downside 
risks for household balance sheets (Graph 2.5b). In 
addition,  the  composition  of  mortgage  loans  has 
changed  since  the  beginning  of  the  2000s,  with 
deferred-instalment  and  adjustable-rate 
loans 
gaining  in  popularity,  thus  leaving  households 
more  exposed 
rate  hikes  and 
interest 
fluctuations in property prices.  

to 

The  recent  report  'Gældsudgifter  i  husholdninger 
med  realkreditlån'  by  the  Danish  Ministry  of 
Business  and  Growth  on  household  indebtedness 
in  Denmark  finds  that  the  total  mortgage  debt  of 
Danish  households  represents  about  1,364  billion 
Danish  Kroner,  which  equals  approximately  78% 
of  Danish  GDP.  The  report  notes  that  mortgage 

(2)  Private  sector's  debt  is  defined  as  the  sum  of  loans  and 
securities  other  than  shares,  non-consolidated.  The  private 
sector  includes  non-financial  corporations  (private  and 
public 
non-profit 
corporations), 
institutions serving households. 

households, 

and 

14 

 
                                                           
 
                                                           
 
 
2. Macroeconomic Situation and Potential Imbalances 

Graph 2.5a:Sectoral decomposition of total 
gross debt (Private sector EA17)

Graph 2.6:Real house price cycle, upswing 
and correction against different benchmarks

P
D
G

f

o
%

500

450

400

350

300

250

200

150

100

50

0

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Financial corporations
Government
Household
Non financial corporations
Private sector EA17
Private sector

Graph 2.5b:Net financial assets of households

P
D
G

f
o
%

300

200

100

0

-100

-200

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12*

A, currency and deposits (F2)
A, F7 (other accounts)
A, insurance & TR (F6)
A, shares and other equity (F5)
A, loans (F4)
A, securities OTS (F3)

L, other accounts (F7)
L, insurance & TR (F6)
L, shares and other equity (F5)
L, loans (F4)
L, securities OTS (F3)
Net financial assets

Source: Commission services

2.5.  ASSET MARKET DEVELOPMENTS 

Due  to  easy  credit  conditions,  house  prices  in 
Denmark  experienced  a  sustained  increase  in  the 
ten  years  up 
to  2007,  with  a  considerable 
acceleration  between  2003  and  2007,  when  the 
increase  in  real  house  prices  amounted  to  54%. 
The  property  tax  freeze  since  2002  and  the 
introduction  of  deferred-instalment  mortgages  in 
2003 are among the factors that contributed to this 
development(4). 

(4)  Danmarks Nationalbank (2011). 

Cumulated change from trough
to peak (%)

DE

0

BE

50

IT

ATPT

CZ
EL

HU

FI

LU

100

150

FR

SE

200

250

300

350

MT

SI

SK

PL

NL
UK

DK

BG

EE

IE

ES

RO

Previous trough

LV

l

o
t

k
a
e
p
m
o
r
f
e
g
n
a
h
c
d
e
t
a
u
m
u
C

l

)

%

(
a
t
a
d
t
s
e
t
a

10

0

-10

-20

-30

-40

-50

-60

-70

-80

Source: ECB, OECD, BIS, Eurostat, Commission services 

The housing  market  in  Denmark turned around in 
2007,  already  before  the  onset  of  the  global 
financial and economic crisis, and, since then, real 
house  prices  have  declined  by  more  than  27%. 
Following  a  sharp  fall  in  2008,  house  prices 
stabilised  between  2009  and  2010,  before 
continuing their descent in 2011 (-0.1%) and 2012 
(-4.9%) (Graph 2.7a). As a consequence, the ratio 
of affordability (price-to-income) is currently close 
to its long-term average (Graph 2.7b). On the other 
hand,  measured  against  past  experience,  a  further 
downward  adjustment  cannot  be  excluded  (see 
Graph 2.6) (5). 

(5)  Note: Graph 2.6 refers to a scatterplot of inflation-adjusted 
house  price  developments  in  EU  Member  States.  Past 
peaks  are  identified  and  troughs  and  plot  the  total  growth 
from  latest  trough  to  latest  peak  against  the  growth  from 
latest peak to the current level. The House price series are 
staff  calculations  obtained  by  backward  linking  ESTAT 
data with data from other sources (ECB, OECD, BIS). The 
curve representing the previous trough is not intended to be 
interpreted  as  a  benchmark.  Rather  it  helps  visualise  that 
the  reference  points  used  for  the  calculation  of  the  two 
growth  rates  are  different:  trough-to-peak  increases  are 
calculated  taking  the  trough  as  base  year  while  peak-to-
latest  data  considers  the  peak  as  base  year.  Moreover,  in 
order to take into account the different cycle durations the 
latest  trough  and  peak  information  for  each  country  is 
reported under the chart 

15 

 
 
                                                           
 
 
 
 
                                                           
 
 
 
 
 
 
 
 
 
 
 
European Commission 

Macroeconomic Imbalances - Denmark 2013 

Graph 2.7a:Evolution of House Price Index 
and MFI Loans for House Purchase

Graph 2.7b:Price to disposable income 
(2005=100), E27

2005=100

)

%

(

y
-
o
-
y
e
g
n
a
h
c

f
o
e
t
a
R

14

12

10

8

6

4

2

0

-2

-4

-6

140

120

100

80

60

40

20

0

99Q4 01Q4 03Q4 05Q4 07Q4 09Q4 11Q4

MFI loans for house purchase (% GDP, yoy)
Real House Price Index (2005=100), right axis
Nominal House Price Index (2005=100), right axis

350

300

250

200

150

100

50

0

LT AVERAGE
2011

BE IE ES IT MT PT FI BG DK LT PL SE

euro area

non-euro area

Source: ECB,Commission services (Graph 2.7a); AMECO, OECD, ESTAT, ECB, BIS (Graph 2.7b)

Following  the  bursting  of  the  housing  bubble, 
household  indebtedness  became  a  prime  risk  for 
the  financial  sector  and  the  near-to-medium-term 
outlook  for  private  consumption.  In  Section  3, 
private  indebtedness  is  analysed  within  the  scope 
of  developments  in  mortgage  foreclosures,  real 
estate  revaluation  and  wealth,  taking  into  account 
recent 
household 
on 
insolvency and the stability of the household debt. 

information 

possible 

16 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3. 

IN-DEPTH ANALYSIS OF SELECTED TOPICS 

3.1.  COMPETITIVENESS 

AND 

EXPORT 

PERFORMANCE 

though  at  more  moderate 

Denmark's current account has recorded significant 
and  rising  surpluses  over  several  years  and  it  is 
likely that the surplus will be sustained in the next 
levels. 
few  years, 
Nevertheless,  when  looking  at  Denmark's  export 
performance  the  loss  in  EMS  remains  well  above 
the threshold for the corresponding indicator in the 
MIP scoreboard. The sustained decline in EMS in 
spite 
cost 
competitiveness suggests that non-cost factors may 
be playing a role. 

improvements 

recent 

of 

in 

favourable,  while 

The  2012  In-Depth  Review  concluded  that  the 
product  composition  of  Danish  goods  exports  is 
rather 
their  geographical 
specialisation  acts  as  a  drag  on  export  growth.  A 
more refined analysis that breaks down Denmark's 
export  performance,  defined  as  a  country's  export 
growth  minus  global  export  growth, 
into 
geographical  destinations  and  product  categories 
before  and  after  2008  shows  that  Denmark's 
geographical  specialisation  was  a  positive  factor 
before the crisis while it became a negative factor 
in 
(Graph  3.1a).  The  strong 
orientation  of  Danish  exports  towards  the  slow-
growing  European  market  is  likely  to  be  a  main 

its  aftermath 

explanation  for  this.  However,  holding  export 
destinations  constant  Danish  export  performance 
also  deteriorated  both  before  and  after  the  crisis, 
although  this  deterioration  was  less  pronounced 
during the later period.  

less 

such 

goods 

The  contribution  of  Denmark's  initial  product 
specialisation to export growth, which was close to 
neutral  before  the  crisis,  became  mildly  positive 
afterwards.  This  seems  to  be  due  to  the  share  of 
cyclically 
as 
sensitive 
pharmaceuticals, food and food related products in 
Denmark's  overall  exports. 
In  other  words, 
Denmark's  product  specialisation  becomes  a 
positive  factor  during  downturns  or  periods  of 
slow  growth,  like  2008-2012.  This  may  again 
reverse  once 
recovery  becomes  more 
entrenched.  Furthermore,  the  analysis  of  market 
share  developments  within 
individual  product 
categories  suggests again a  strong deterioration in 
competitiveness  as  shown  by 
the  negative 
contribution before the crisis which even worsened 
later.  

the 

Denmark's  exports  of  services  seem  to  perform 
better than those of goods, with their share in total 
world exports having remained rather stable since 
2000  (Graph  3.1b).  The  positive  contribution  of 
services to the evolution of market shares reflects, 
to  a  significant  extent,  the  large  representation  of 

Graph 3.1a:Growth in nominal exports relative 
to global growth in exports (Shift-share 
analysis)

Graph 3.1b:Share of Danish exports of 
services in total world exports

)

%

(

y
-
o
-
y
e
g
n
a
h
c

f

o
e

t

a
R

1.0

0.5

0.0

-0.5

-1.0

-1.5

-2.0

-2.5

-3.0

-3.5

-4.0

-4.5

Pre-crisis

Post-crisis

Denmark

Market share
gains in
product
markets

Market share
gains in
geographical
destinations

Initial product
specialisation

Intial
geographical
specialisation

Other services

Travel

Transportation

Total

2010-2011
2000-2001

0.0

1.0

2.0

3.0

4.0

5.0

Share in total world exports (%)

Source: Commission services . Note: Decomposition of total (worldwide) nominal export growth (net of the global trade 
growth) into four components: i) growth due to the growth of destination markets, ii) growth due to the growth in product 
markets, iii) export growth to destination markets above their growth, iv) export growth in product markets above their growth. 
The decomposition tells whether a country was initially (in the beginning of a period) specialised in geographical destinations 
and/or sectors with dynamic or sluggish demand as well as whether a country has increased or decreased its share in these 
geographical or product markets. The pre-crisis period is defined as 2000-2007, the post-crisis period is defined as 2007-2010

17 

 
 
 
 
 
 
European Commission 

Macroeconomic Imbalances - Denmark 2013 

sea transport in Danish services exports.  

following 

elaborates 

The 
the 
analysis 
developments  in  the  potential  explanatory  factors 
behind  Denmark's  losses  in  export  market  shares, 
focusing on both cost and non-cost related aspects 
(ULC,  product  composition  and  geographical 
destination). 

3.1.1.  Cost  competitiveness  and  changes  in 

unit labour cost 

The  problem  of  Danish  competitiveness  and  the 
weak performance of export of goods can be partly 
attributed  to  a  rise  in  relative  unit  labour  cost 
(ULC)  resulting  from  high  nominal  wage  growth 
coupled  with  weak  productivity  growth.  A 
negative  relationship  between  EMS  and  wage 
competitiveness  was  revealed  in  the  In-Depth 
Review  of  2012.  While  a  relatively  high  share  of 
up-market products to some extent allowed Danish 
exporters  to  pass  on  rising  costs  to  prices,  high 
ULC contributed to the decrease in export  market 
shares in volume terms. 

External  cost  competitiveness  is  also  related  to 
fluctuations  in  nominal  exchange  rates.  Denmark 
is part of the Exchange Rate Mechanism II and the 
exchange rate is set at a fixed value plus or minus 
2.25% vis-à-vis the euro. As a consequence, since 
1998,  the  nominal  krone-euro  exchange  rate  has 
remained almost unchanged. However, in effective 
terms, i.e. taking into account the fluctuation of the 
euro vis-à-vis the currencies of Denmark's trading 
partners,  the  Danish  krone  appreciated  between 
2000 and 2009 and depreciated afterwards (Graph 
3.2a).  

In 

unit 

costs. 

labour 

This  trend  of  deteriorating  competitiveness  in  the 
earlier period and an improvement in the latter has 
been  reinforced  by  developments  in  Denmark's 
particular, 
relative 
productivity  growth  has  been  low  as  compared 
with  main  competitors  over  the  past  decade.  On 
the other hand, productivity growth has picked up 
over  the  last  three  years,  but  there  is  uncertainty 
about  whether  this  reflects  a  structural  shift  or  a 
cyclical acceleration at the start of a recovery when 
employment growth tends to lag output growth.  

Economic  analyses  have  been  focussing  on  the 
issue of low productivity growth for some time and 
a number of possible sources have been identified 

18 

such  as  insufficient  competition  in  some  sectors 
(construction,  retail  trade,  health  care,  and  public 
sector services) and inefficiencies in the education 
system.  In  order  to  address  this  issue  in  a 
comprehensive manner the Danish authorities have 
set  up  the  Productivity  Commission  which  is 
mandated 
policy 
recommendations by the end of 2013.  

come 

with 

up 

to 

)

%

(

y
-
o
-
y
e
g
n
a
h
c

f

o
e

t

a
R

0
0
1
=
8
0
0
2

,

t

h
w
o
r
g
%

Graph 3.2a:Rate of change of nominal and real 
effective exchange rates (HICP- and ULC-
based) vis-à-vis IC35 

98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

NEER
REER (HICP)

relative HICP (-)
REER (ULC)

Graph 3.2b:Developments in labour wage 
index 

6

4

2

0

-2

-4

-6

-8

115

110

105

100

95

90

85

05

06

07

08

09

10

11

Denmark
Sweden

Germany
Finland

Netherlands

Source: Commission services 

Despite sluggish productivity growth, wage growth 
in  Denmark  has  developed  broadly  in  step  with 
that  of  its  main  competitors  Sweden,  Finland  and 
the  Netherlands  while  exceeding  by  far  that  of 
Germany. Wage growth accelerated particularly in 
the  period  before  the  crisis  when  the  economy 
showed  signs  of  overheating,  but  started  to  slow 
down  from  2009  on  and  fell  below  that  of  main 

 
 
 
 
 
 
 
 
3. In-Depth Analysis of Selected Topics 

competitor  countries  between  2010  and  2012 
(Graph 3.2b).  

As a result of these developments, the rise in ULC 
exceeded that of the country's main competitors for 
most  of  the  2000s  (Graph  3.3). The  resulting  cost 
competiveness  gap  started  to  reverse  only  from 
2009  onwards  when  wage  growth  started  to  slow 
down  and  productivity  growth 
to  pick  up. 
However,  despite  these  recent  improvements,  the 
cost  competitiveness  gap  remains  large  and  a 
further  sustained  improvement  is  necessary  to 
correct  for  the  losses  that  accumulated  during  the 
past decade. On current projections, the gap should 
narrow  further  in  coming  years  as  a  result  of 
continued  moderate  wage  developments  and 
productivity  growth  returning  to  its  longer-term 
average. 

Graph 3.3:Rate of change of nominal ULC

0
0
1
=
9
9
9
1

,
h
t
w
o
r
g
%

140

130

120

110

100

90

80

99 00 01 02 03 04 05 06 07 08 09 10 11 12*13*14*

Denmark
Sweden

Germany
Finland

Netherlands

Source: Commission services 

3.1.2.  Export  market  shares  and  geographical 

specialisation of exports 

Denmark  is  a  small  and  open  economy  in  which 
trade in goods and services constitute a significant 
share  of  GDP.  Danish  export  growth  in  both 
volume  and  value  terms  was  characterised  by 
steady  growth  over  the  last  decade,  with  the 
exception of 2009, when the global crisis triggered 
terms,  however, 
relative 
a  contraction. 
Denmark's  export  performance  was  moderate. 
Indeed,  over  the  period  2005-2011  Denmark  had 
the  second  lowest  rate  of  growth  in  exports  for 
both  goods  and  services  when  compared  with  its 
competitors (Graph 3.4a and Graph 3.4b).  

In 

in 

in 

the 

the 

global 

particular 

economic 
Developments 
environment, 
growing 
participation  of  high-growth  emerging  economies 
in  international  trade,  pose  new  challenges  for 
Danish  exporters.  Last  year's  In-Depth  Review 
found  that  the  mix  of  geographic  destinations  of 
Danish  exports  did  not  contribute  to  growth  of 
export  market  shares  between  2000  and  2005  and 
that,  as  a  consequence,  Denmark  would  benefit 
from  greater 
in  high-growth 
emerging markets.  

representation 

Graph 3.4a: Goods: Rate of change of exports 
to the rest of the world (in value terms), 
selected countries 

2005=100

150

140

130

%

120

110

100

90

80

05

06

07

08

09

10

11

Denmark
Finland

Germany
Sweden

Netherlands

Graph 3.4b: Services: Rate of change of 
exports to the rest of the world (in value 
terms), selected countries

2005=100

170

160

150

140

%

130

120

110

100

90

80

05

06

07

08

09

10

11

Denmark
Finland

Germany
Sweden

Netherlands

Source: Commission services 

19 

 
 
 
 
 
 
Graph 3.5a:Export dependency on the EU -
goods (in value terms) 

Graph 3.5b:Export dependency on the EU  -
services (in value terms)

European Commission 

Macroeconomic Imbalances - Denmark 2013 

%

90

80

70

60

50

40

30

20

10

0

05

06

07

08

09

10

11

Denmark
Netherlands
Sweden

Germany
Finland
Linear (Denmark)

Source: Commission services 

In geographical terms, Denmark's exports reveal a 
strong  dependency (6)  on  the  EU:  compared  with 
its  competitors,  Denmark  is  the  second  most 
dependent  on  the  EU  for  goods  exports  and  the 
third  for  services  exports.  However,  Denmark's 
export  shares  to  the  EU  have  been  falling  since 
2005,  implying  that  its  exports  have  become  less 
dependent  on  EU  demand.  While  this  reflects  a 
more  general  development  across  EU  countries, 
the  trend  has  been  slightly  more  pronounced  than 
for  its  main  competitors  (Graph  3.5a  and  Graph 
3.5b). 

But  the  future  performance  of  Denmark's  exports 
will hinge to a considerable extent on its capacity 
to  penetrate  high-growth  emerging  markets,  such 
as  the  BRICS  (Brazil,  Russia,  India,  China  and 
South Africa). In this respect, Denmark is lagging 
behind  its  main  competitors,  with  its  share  of 
goods exported to these countries being the second 
lowest  after 
the  Netherlands.  Since  2005,  a 
positive  trend  has  been  apparent  which  however 
has  not  been  more  pronounced  than  for  its  main 
competitors (Graph 3.6).  

Denmark's limited presence in the BRICS could be 
due  to  its  large  share  of  small  and  medium-sized 
firms in value-added, as these firms typically face 
greater  difficulties  in  venturing  into  new  markets. 
Furthermore,  according  to  a  study  by  Danmark 

(6)  Export dependency on the rest of the EU is understood as a 
relation  of  EU-directed  exports  to  the  total  exports  of  a 
country. 

20 

%

70

60

50

40

30

20

10

0

07

08

06

05
Denmark
Netherlands
Sweden

11

09
10
Germany
Finland
Linear (Denmark)

Nationalbank (7), firms in small countries display a 
greater  tendency  to  export  to  their  neighbouring 
countries,  especially  if  these  are  large,  leaving  a 
smaller  export  share 
in 
comparison to larger countries. However, this does 
not  explain  why  Sweden  and  Finland  perform 
significantly better than Denmark in this regard.  

to  distant  markets 

One  reason  for  Denmark's  low  presence  in  these 
markets  could  also  be  the  product  composition  of 
its  exports,  which  is  concentrated  in  relatively 
expensive  high-quality  consumer  products.  While 
the  demand  for  such  products 
is  currently 
relatively  low  in  emerging  economies,  the  high 
income elasticity of demand for such products and 
the  rapidly-growing  incomes  in  these  countries 
may  impact  positively  on  Denmark's  exports  to 
these markets in the future. 

(7)  Danmarks Nationalbank (2012b). 

 
                                                           
 
                                                           
 
3. In-Depth Analysis of Selected Topics 

to  have 

Denmark's exports are relatively less concentrated 
in  high-tech  products.  High-tech  products  are 
assumed 
the  highest  export  growth 
potential, as they represent the cutting edge of new 
products that are manufactured with the use of the 
highest and newest technology available. The high 
level of knowledge gained by the specialisation in 
high-tech  products  could  potentially  benefit 
Denmark 
significant 
improvement in productivity. As is to be expected, 
for  high-tech  products  the  volume  component 
plays  a  subordinate  role.  In  terms  of  values,  the 
composition  of  Danish  exports  has  seen  a 
favourable  development  between  2005  and  2011, 
with  the  share  of  high-tech  products  in  overall 
exports  of  manufactures  having 
increased 
noticeable. 

and  would 

allow 

a 

Compared to its competitors, however, the relative 
performance  of  Danish  high-tech  exports  appears 
less  favourable.  Between  2005  and  2011,  only 
Finnish  exports  reveal  lower  growth  for  this  type 
of  products  (Graph  3.9a).  On  the  positive  side, 
extra-EU  exports  of  high-tech  products  did 
relatively  well  (Graph  3.9b).  Given  that  extra-EU 
markets  are  expected  to  grow  faster  in  coming 
years this bodes overall well. 

the 
The  above  analysis  broadly  confirms 
conclusion  of  the  previous  In-Depth  Review. 
While Denmark seems to be relatively  specialised 
in low-tech products,  within this product category 
its  exports  are  concentrated  in  the  higher-value 
segment and there has been a further accentuation 
of  this  trend  in  recent  years.  High-tech  products 
are  still  somewhat  underrepresented  in  overall 
exports but changes over past years go in the right 
is 
direction  even 
somewhat  less  pronounced  than  for  its  main 
competitors.  Overall,  it  can  be  concluded  that 
product market composition does not seem to be a   
risk factor to Denmark's export performance. 

this  development 

though 

Graph 3.6:Exports to BRICS as percentage of 
total exports goods (in values)

%

18

16

14

12

10

8

6

4

2

0

05

06

07

08

09

10

11

Germany
Netherlands
Sweden

Denmark
Finland
Linear (Denmark)

Source: Commission services 

3.1.3.  Product  market  composition  and 
developments in exports of goods 

in 

despite 

improvements 

Denmark  continued  to  lose  EMS  in  the  past  few 
years 
cost 
competitiveness  and  the  fact  that  the  product 
composition  of  exports  has  been 
relatively 
favourable to export growth.  To better understand 
the  relationship  between  the  market  share  losses 
and developments in exports of goods, it is helpful 
to look in greater detail at the product composition 
of Danish exports.  

Denmark  is  relatively  specialised  in  low-tech 
products.  Although 
tech  products  as 
low 
percentage  of  overall  exports  have  declined 
considerably  over  past  decades (8) 
they  still 
account  for 
largest  share  of  Denmark's 
manufacturing  exports  in  terms  of  values  (Graph 
3.7a and Graph 3.7b-c). However, Danish low-tech 
exports have a relatively high value density which 
has further increased between 2005 and 2011. 

the 

Interestingly,  when  compared  with 
its  main 
competitors,  between  2005  and  2011  Danish  low-
tech  products  performed  better  in  volume  terms 
than  in  value  terms  (Graph  3.8a  and  Graph  3.8b). 
This  points 
cost 
competiveness  and/or  a  compression  of  profit 
margins  in  recent  years  which  allowed  Danish 
exporters  in  this  product  segment  to  maintain 
relatively high sales in volume terms. 

improvement 

an 

to 

in 

(8)  Danmarks Nationalbank (2012b). 

21 

 
 
                                                           
 
 
 
European Commission 

Macroeconomic Imbalances - Denmark 2013 

Graph 3.7a: Composition of goods exported, 
2005 and 2001 (values) 

Graph 3.7b: Share of high- and low-tech 
products in manufacturing exports (values)

OTHER MANUFACTURED GOODS
OTHER TRANSPORT EQUIPMENT
MOTOR VEHICLES & TRAILERS

MEDICAL & OPTICAL INSTRUMENTS,…
RADIO, TELEVISION &…

ELECTRICAL MACHINERY
OFFICE MACHINERY & COMPUTERS
MACHINERY & EQUIPMENT N.E.C.
FABRICATED METAL
BASIC METALS
OTHER NON-METALLIC MINERAL
RUBBER & PLASTIC
CHEMICALS & MAN-MADE FIBRES

COKE, REFINED PETROLEUM  &…

PRINTED MATTER & RECORDED MEDIA
PULP & PAPER

WOOD & CORK, STRAW ARTICLES &…

LEATHER
WEARING APPAREL; FURS
TEXTILES
TOBACCO
FOOD & BEVERAGES
OTHER MINING & QUARRYING
METAL ORES
URANIUM & THORIUM ORES
CRUDE PETROLEUM & NATURAL GAS
COAL & LIGNITE; PEAT
FISH & OTHER FISHING

FORESTRY, LOGGING & RELATED…
AGRICULTURE, HUNTING & RELATED…

2005

0

20

2011

40

g
n
i
r
u
t
c
a
f
u
n
a
m
n

i

e
r
a
h
s
%

)
s
e
u
a
v
(

l

s
t
r
o
p
x
e

high tech

medium high tech

medium-low tech

low tech

22.4

17.0

28.6

30.6

15.1

18.9

33.9
33.5

0

10

20

30

40

50

Graph 3.7c: Share of high- and low-tech 
products in manufacturing exports (volumes)

high tech

0.6
0.6

medium high tech

medium-low tech

low tech

15.0
15.3

45.1

42.6

39.2

41.5

0

20

40

60

s
t
r
o
p
x
e

g
n
i
r
u
t
c
a
f
u
n
a
m
n

i

e
r
a
h
s
%

)
s
e
m
u
o
v
(

l

Source: Commission services 

2005

2011

Graph 3.8a:Rate of change of low-tech exports 
to the rest of the world (in value terms) 

Graph 3.8b:Rate of change of low-tech exports 
to the rest of to the world (in volume terms) 

0
0
1
=
5
0
0
2
,

%

150

140

130

120

110

100

90

80

05

06

07

08

09

10

11

0
0
1
=
5
0
0
2
,

%

130

120

110

100

90

80

70

05

06

07

08

09

10

11

Germany
Netherlands

Denmark
Sweden

Finland

Germany
Netherlands

Denmark
Sweden

Finland

Source: Commission services 

22 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3. In-Depth Analysis of Selected Topics 

Graph 3.9b:Rate of change of high-tech 
exports to extra- EU countries (in value terms)

Graph 3.9a:Rate of change of high-tech 
exports to the rest of the world (in value 
terms)

140

120

100

80

60

40

20

0

0
0
1
=
5
0
0
2
,

%

140

120

100

0
0
1
=
5
0
0
2
,

%

80

60

40

20

0

05

06

07

08

09

10

11

05

06

07

08

09

10

11

Germany

Netherlands

Denmark

Sweden

Source: Commission services 

Finland

Germany

Netherlands

Denmark

Sweden

Finland

3.2.  HOUSEHOLD DEBT 

3.2.1.  Risks to financial stability 

adjustable-rate  mortgage 

In terms of financial stability, the consequences of 
the rise in household debt have been contained so 
far.  This  is  visible,  for  instance,  in  the  number  of 
foreclosures  which,  although  having  risen  in  the 
aftermath of the crisis, has remained at a moderate 
level  in  a  historical  perspective  (Graph  3.10a). 
Admittedly,  the  consequences  of  the  larger  share 
of 
among 
households have so far been mitigated by the drop 
in interest rates on Danish mortgage bonds, leading 
to  a  fall  in  the  interest  rate  burden  of  households 
from 2010 to 2011 (Graph 3.10b). As the increase 
leaves 
in 
households  more  exposed  to  interest  rate  hikes  in 
the  future, 
the 
vulnerability of Denmark in this respect.  

the  share  of  adjustable-rate 

is  pertinent 

investigate 

loans 

loans 

to 

it 

the 

Recent  research  on  the  distribution  of  household 
debt  provides  some  comfort  in  this  regard.  In 
particular, a study by the Ministry of Business and 
Growth (9)  on 
loan  distribution  among 
households  shows  that,  in  general,  mortgage  debt 
is  concentrated  among  households  with  high 
incomes. Almost 90% of the mortgage debt is held 
by  households  in  the  upper  half  of  the  income 
distribution  and  one  third  of  all  mortgage  debt  is 
held by households in the 10th decile of the income 

(9)  Ministry of Business and Growth (2013). 

those  with 

the  highest 

distribution.  Similarly,  a  study  by  Danmarks 
Nationalbank  (DNB) (10)  shows  that  the  largest 
part of household gross debt is concentrated in the 
hands  of 
incomes. 
Specifically,  more  than  one  half  of  total  family 
gross debt is held by the 20% of families with the 
highest  after-tax  incomes.  Conversely,  families 
that  belong  to  the  lower  half  of  the  income 
distribution  accounted  for  a  mere  14%  of  total 
gross  debt.  The  conclusion  emerging  from  these 
studies  is  that  most  of  the  debt  is  held  by 
households,  who  are  likely  to  find  it  easier  to 
service  their  loans  also  in  a  situation  of  rising 
interest rates. 

Nevertheless,  variable-interest 
and  deferred-
instalment  loans  do  pose  some  risks  to  the 
financial system. According to the latest Danmarks 
Nationalbank report (11), the share of variable-rate 
loans out of total lending by  mortgage banks rose 
from 46% to 68% from the beginning of 2005 until 
the  third  quarter  of  2012.  Over  the  same  period, 
share  of  deferred-amortisation  loans  rose  from 
20%  to  56%  of  total  mortgage  lending.  Variable 
rate 
loans  are  particularly  prevalent  among 
families in the top 10% and the bottom 10% of the 
income  distribution.  For  the  latter  income  class, 
which is considered to be the most vulnerable one, 
loans  with  variable  rates  represent  almost  70%  of 
the  total.  Also,  deferred-instalment  loans  with 
rates  are  more  widespread  among 
variable 

(10)  Danmarks Nationalbank (2012b). 
(11)  Danmarks Nationalbank (2012d). 

23 

 
                                                           
 
                                                           
 
 
 
 
 
European Commission 

Macroeconomic Imbalances - Denmark 2013 

s
e
r
u
s
o
c
e
r
o
f

l

f
o
r
e
b
m
u
N

4,500

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

0

Graph 3.10a:Foreclosures 

Graph 3.10b:Interest burden of households 
and non-financial corporations

I

D
G
d
n
a

d
e
d
d
a

e
u
a
v

l

f
o
%

16

14

12

10

8

6

4

2

0

3
9

4
9

5
9

6
9

7
9

8
9

9
9

0
0

1
0

2
0

3
0

4
0

5
0

6
0

7
0

8
0

9
0

0
1

1
1

2
1

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Interest payments / gross disposable income, Households
Interest payments / gross disposable income, Households, EA17
Interest payments / value added, Non-fin. Corporations
Interest payments / value added, Non-fin. Corporations, EA17

Source: Association of Danish Mortgage Banks (Graph 3.10a), Commission services (Graph 3.10b)

guarantees  in  property.  The  potential  DKK  280bn 
(37  bn  EUR)  of  debt  held  by  households,  which 
would  have  to  spend  more  than  50%  of  their 
disposable income on debt service, would thus not 
fully  burden  the  financial  sector  and  is  therefore 
unlikely  to  pose  a  serious  threat  to  Denmark's 
financial stability.  

stability  at 

the  current 

Overall,  the  financial  sector's  losses  on  household 
exposures  have  been  modest  so  far  in  the  face  of 
rising  gross  debt.  Against  this  background  and 
given  recent  research  on 
the  distribution  of 
household debt, it appears that the debt-to-income 
ratio does not constitute a threat to the economy's 
financial 
juncture. 
Nevertheless,  in  the  current  fragile  financial  and 
macro-economic  environment,  the  high  level  and 
the  composition  of  mortgage  debt  have  increased 
the  exposure  of  the  financial  system  to  adverse 
developments.  Under 
a 
simultaneous  materialisation  of  factors  such  as 
rising  interest  rates,  a  further  fall  in  house  prices 
and 
rising 
unemployment,  pressure  points  in  the  Danish 
mortgage system may show up.  

continued 

risk  of 

growth 

low 

and 

tail 

the 

households  in  the  lower  part  of  the  income 
distribution.  This  also  reflects  the  fact  that  such 
households  used  the  possibilities  in  the  mortgage 
credit  system  to  move  to  these  types  of  mortgage 
loans,  when  their  incomes  fell  as  a  result  of  the 
crisis, possibly to avoid foreclosure.  

is 

Ultimately,  what  counts 
the  capacity  of 
households to service their debt. According to the 
study by the Ministry of Business and Growth, the 
large majority of households (95%) spend less than 
half  of  their  disposable  income  on  servicing  their 
total debt. The study shows that a one-percentage-
point  increase  in  interest  rates  would  raise  the 
share  of  households  that  spend  more  than  half  of 
their income on debt service from 5% to 6%. In a 
'stress  test'  scenario  with  interest  rates  rising  by  5 
percentage  points,  the  corresponding  share  would 
rise to 13%. The amount of debt held by this group 
would  then  correspond  to  DKK  280bn  or  21%  of 
all  mortgage loans. However, as some households 
will  be  able  to  react  before  such  an  interest  rate 
hike occurs – e.g. by changing to other loan types 
(for  instance,  to  fixed  rate  loans  if  the  rates  on 
these loans do not increase correspondingly) or by 
selling their house or other assets – the calculated 
share  of  households  with  a  debt  service  burden 
above  50%  should  be  considered  an  upper  limit. 
Furthermore,  part  of  these  households  would  still 
be  able  to  continue  servicing  their  debt  even  if 
their  debt  service  burden  rose  above  50%  and,  in 
case  of  default  their  loans,  would  be  backed  by 

24 

 
 
 
 
 
 
 
 
 
 
3. In-Depth Analysis of Selected Topics 

160

140

120

100

80

60

40

20

0

s
t

e
s
s
a

d
n
a
P
D
G

f

o
%

Graph 3.11a:Household debt ratios 

Graph 3.11b:Indicators of over-indebtedness, 
selected countries  

Gap (iii) Sustainable benchmark
Gap (i) 2000 Level
Gap (ii) Statistical Threshold

350

300

250

200

150

100

50

0

I

D
G
%

P
D
G

f

o
%

100

80

60

40

20

0

-20

95

97

99

01

03

05

07

09

11

DE

FI

SE

ES

PT

UK

IE

NL

DK

Debt / GDP, Households
Debt / fin. assets, Households
Debt / gross disposable income, Households (right axis)

Debt-to-GDP levels in 2011 are compared against three 
benchmarks: (i) their 2000 level; (ii) The third quartile of the 
1994-2007 distribution for the EU27 and (iii) a sustainable 
benchmark that takes into accounts valuations effects in financial 
as well as non-financial assets

Source: Commission services

3.2.2.  Risks to economic stability 

Some  consolidation  efforts  among  households 
have been observed in recent years, with the debt-
to-gross  disposable  income  ratio  being  reduced 
from an  historical high of 302% in 2009 to 286% 
in  2011  (Graph  3.11a).  A  similar  downward 
adjustment is also apparent when debt is measured 
terms  of  debt-to-GDP  or  debt-to-assets. 
in 
Nevertheless,  indicators  of  over-indebtedness  of 
households  show  a  level  of  the  debt-to-GDP  ratio 
in  Denmark  that  is  one  of  the  highest  in  the  EU 
(Graph 3.11b). However, as the high debt level and 
the changes to it also reflect structural factors such 
as  lower  structural  unemployment,  this  does  not 
terms  of 
necessarily 
in 
increased. 
deleveraging  are  high  or  have 
Accordingly, 
the 
is  necessary 
deleveraging pressures from a broader perspective 
in order to have a better appreciation of the gravity 
of the situation. 

look  at 

imply 

risks 

that 

to 

it 

To  this  end,  a  stress  map  of  credit  supply  and 
demand  conditions  has  been  constructed  which 
puts  Denmark's  situation  into  the  EU  context 
(Graph  3.12a  and  Graph  3.12c).  Such  a  relative 
analysis,  complemented  by  an  assessment  of  the 
overall trend for individual indicators (see below), 
provides 
approximation  of 
first 
deleveraging  pressures  faced  by  an  individual 
Member  State.  For  Denmark,  it  appears  that 

a  useful 

neither  demand-side  nor  supply-side 
pressures seem to be of particular concern ( 12). 

lending 

Synthesising  the  information  on  individual  items 
indicating credit demand and supply pressures (see 
Tables  3.1  and  3.2),  Graph  3.12b  shows  that 
Denmark  belongs  to  EU  Member  States  with 
relatively  low  demand  pressures,  particularly  due 
low  unemployment  and  high  consumer 
to 
confidence,  and  with 
low  supply 
pressures,  mainly  because  of  its  performance  in 
terms of bank profitability and low sovereign CDS 
spreads. 

relatively 

(12)  Indeed,  all  indicators  of  lending  supply  and  demand 
pressures  for  Denmark  are  close  to  or  below  the  EU 
average.  In  addition,  these  indicators,  respectively,  were 
constructed from the individual indicators above in order to 
gauge  the  likely  effect  on  the  short-term  deleveraging 
dynamics.  The  overall  indicator  is  based  on  the  average 
rank of a Member State on each variable. Specifically, for 
each Member State the rank (percentile) along all variables 
is calculated. The average rank is then calculated separately 
for supply and demand variables and scaled to be between 
0 and 10 Tables 3.1and 3.2 present the individual variables 
and  the  overall  pressure  indicator  for  all  Member  States.

25 

 
                                                           
 
 
 
 
 
 
 
 
 
 
European Commission 

Macroeconomic Imbalances - Denmark 2013 

Graph 3.12a:Stress map of credit demand 
conditions 

Unemployment rate

House-purchase
loan demand (bank
survey, inv. scale)

SME loan demand
(SME survey, inv.
scale)

Consumer
confidence (inv.
scale)

Economic sentiment
(inv. scale)

Corporate loan
demand (bank
survey, inv. scale)

House price change
(vs. 2007Q4)

Graph 3.12c:Stress map of credit supply 
conditions 

NPL increase (vs.
2007)

SME lending
tightness (SME
survey)

Corporate lending
tightness (bank
survey)

Mortgage lending
tightness (bank
survey)

Tier 1 ratio (inv.
scale)

Bank profitability -
ROE (inv. scale)

Banks' high-risk
foreign claims

Sovereign CDS

DK

Average

Graph 3.12b:Lending demand and supply 
pressures

CY

EL

PT

IT

SI

RO

HU

NL

ES

PL

BG

LU

CZ

BE
DK

FR
IE

AT
UK

SK
LT
LV

FI

SE

DE

EE

MT

10.0

9.0

8.0

7.0

6.0

5.0

4.0

3.0

2.0

1.0

s
e
r
u
s
s
e
r
p
d
n
a
m
e
d
n
a
o

l

l
l

a
r
e
v
O

1.0

3.0

5.0

7.0

9.0

11.0

Overall loan supply pressures

Source: Commission services. 
Note: (i) Graphs 3.12a and c present stress maps of credit supply (up) 
and demand (down) conditions. For each variable the range of the 
graph is given by the maximum and minimum observation among all 
Member States (MS) with available data. A weighted average of all 
available EU27 Member States is provided as a visual reference. 
Variables are plotted on a regular or inverted scale ensuring that a 
larger map corresponds to more adverse conditions. Credit supply-
related indicators include the change in overall non-performing loans 
relative to 2007, the banks' Tier 1 capital ratio, banks' return on 
equity,  banks' exposure to high risk foreign claims as % of GDP, the 
sovereign CDS spread, the Bank Lending Survey (BLS) tightening of 
credit standards for (i) loans to enterprises and (ii) house purchase 
loans (trailing 4-quarter average), and the Survey on the access to 
finance of SMEs (SAFE) loan request failure rate (percentage of 
requests that did not receive all or most of the amount requested). 
Credit demand-related data include the EC Consumer Confidence 
Indicator, the Economic Sentiment Indicator, the unemployment rate, 
the house price evolution relative to 2007Q4, the BLS changes in 
demand for (i) enterprises and (ii) house purchase loans, and the SAFE 
variable on External financing needs. Most recent available data are 
presented (2012 Q2, Q3 or Q4). (ii) Graph 3.1bThe overall supply and 
demand pressures indicators are based on the average rank of a 
Member State (MS) on each supply or demand variable (see the stress 
map explanation for details). Specifically, for each MS we calculate its 
rank (percentile) in all supply/demand variables. We then calculate, 
separately for supply and demand variables, the average rank of a MS 
and we scale it between 0 and 10.

26 

 
 
 
 
 
3. In-Depth Analysis of Selected Topics 

SME loan 
demand (SME 
survey)

House-purchase 
loan demand 
(bank survey)

Overall 
demand 
pressures

Last

10.9
-4.3
5.6

Prev. 
year

5.9
-4.1
5.7

2.0

-1.0

Last Prev. year

-65.0
-85.0
-66.7
-16.7

-50.0
-100.0
-33.3
-38.9

0.5

6.5

-3.1

5.6

-25.0

-16.0

8.2
6.9
7.1
7.0
3.7
4.7
4.1
6.1
2.6
4.6

Table 3.1:
Credit demand conditions, selected countries and EU average

Unemployment 
rate

Consumer 
confidence

Economic 
sentiment

House price 
change (vs. 
2007Q4)

Last

12.5
16.2
5.3
25.5
7.8
7.4
7.5
10.3
7.7
7.8

Prev. 
year
8.1
12.7
4.4
22.0
8.3
7.3
7.6
9.7
7.3
7.7

Last

-2.3
-2.2
-1.9
-1.8
-0.8
-1.6
-0.1
-0.9
-0.7
-1.4

Prev. 
year
-1.0
-2.2
-2.0
-0.6
-1.5
-1.0
-0.6
-0.6
-0.3
-1.7

Last

77.8
79.2
86.3
88.2
97.6
90.4
93.9
85.4
95.1
92.8

Prev. 
year
85.0
79.0
90.5
93.0
94.0
94.6
92.3
92.0
97.1
94.0

Last

-19.7
-5.3
-15.6
-30.2
-2.5
11.3
-17.2
-13.4
15.5
14.2

Prev. 
year
-15.1
2.6
-7.5
-17.7
-4.3
9.4
-16.2
-4.8
14.5
11.9

CY
PT
NL
ES
UK
BE
DK
PL
SE
FI

Corporate loan 
demand (bank 
survey)

P
r
e

Last

-25.0
-15.0
-35.7
-22.5

Average

10.5

9.7

-1.5

-1.3

90.6

93.6

-4.2

-2.3

-27.0

Source:  ECB, BIS, IMF, Datastream, Eurostat and Commission services

level 

 Finally, deleveraging needs may be assessed by a 
comparison  of 
to  an 
the  actual  debt 
equilibrium/sustainable  debt 
level.  Differences 
related to institutional characteristics and structural 
supply-side factors play a  key role in determining 
the  stability  of  financial  conditions.  Hence,  the 
sustainability  of  a  debt  level  should  be  assessed 
against the equilibrium level of household debt as 
a  benchmark.  For  instance,  the  fall  in  structural 
unemployment  prior 
financial 
to 
developments  and  changes  to  the  pension  system 
may  have  led  to  a  rise  in  the  equilibrium  level  of 
debt in Denmark by easing credit rationing without 
incurring  increased  risk.  Therefore,  one  should 
assess the extent to which an increase in the debt to 
income ratio of households constitutes a movement 
towards a new equilibrium or is related to a riskier 
financial position to the sector.  

the  crisis, 

Graph  3.13a  shows  the  household  debt-to-GDP 

Table 3.2:
Credit supply conditions, selected countries and EU average

ratio together with its estimated sustainable path. A 
build-up  of  pressures  can  be  identified  between 
2003  and  2007,  when  the  gap  between  the  actual 
debt  and  its  sustainable  path  increased  rapidly. 
During  this  period,  the  cumulated  difference  rose 
by  35.5  pps  in  Denmark,  which  is  very  high  in  a 
comparative  perspective.  After  a  downward 
correction  in  2008,  the  increase  in  the  annual 
differences  continued,  but  at  a  more  moderate 
pace,  in  2009  and  2010.  According  to  the  latest 
data,  in  2011  further  moderate  rebalancing  took 
place.    The  closure  of  the  gap  between  the  actual 
and  the  sustainable  debt  ratios  has  to  take  place 
through a rebalancing of household sector balance 
sheets. The pace of this adjustment depends, on the 
one hand, on how much the actual ratio of debt to 
by 
GDP 
households, thus reducing their liabilities) and, on 
the other hand, on how much the benchmark rises 
(through  corrections  or  negative  valuation  effects 

(deleveraging 

diminishes 

efforts 

NPL increase
(vs. 2007)

Tier 1 ratio

Last

10.1
5.3
1.3
5.1
0.9
1.9
2.9
0.6
0.2

Prev. 
year
8.6
4.1
1.1
4.4
1.0
1.4
2.2
0.6
0.2

CY
PT
NL
ES
UK
BE
DK
SE
FI

Average 1.8

1.7

Last

11.9
8.5
11.8
9.8
11.1
16.3
15.1
10.9
13.9

11.4

Prev. 
year
7.0
8.6
11.8
10.6
10.7
15.1
14.9
10.9
13.7

Bank 
profitability 
(ROE)

Banks' high-
risk foreign 
claims 
(% GDP)

Sovereign 
CDS

Last

Prev. 
year

Last

Prev. 
year

Last

Prev. 
year

Mortgage 
lending 
tightness 
(bank survey)
Prev. 
year

Last

Corporate 
lending  
tightness
(bank survey)
Prev. 
year

Last

-40.4 -86.0
-4.1
0.9
6.2
5.7
0.1
-5.2
4.2
3.6
1.4
3.2
0.6
2.8
10.7
11.8
8.1
9.5

16.7
16.2
8.5
12.7
12.0

1.4
0.9

1007

1187

50.0
17.6 342.8 1026.4 25.0
29.2
16.5
8.4
8.3
13.3
13.4

53.1
231
45
42
21.0
12
30

96.2
275
70
145
105.8
42
64

1.3
1.0

30.0
90.0
28.0
13.9

60.0
15.0
17.9
2.5

35.0
95.0
-3.6
2.5

SME lending  
tightness
(SME survey)

Overall 
supply 
pressures

Last

Prev. 
year

56.1
70.1
46.6

47.0
48.1
37.5

24.7

16.8

9.1

6.6

8.9
7.9
6.2
5.9
5.0
3.8
3.5
2.5
1.7

11.4

3.2

1.7

12.2

12.9

184

184

15.0

17.0

11.8

14.3

32.1

28.9

Source:  ECB, BIS, IMF, Datastream, Eurostat, European Commission, staff calculations

27 

 
 
 
 
 
 
 
 
 
 
 
 
European Commission 

Macroeconomic Imbalances - Denmark 2013 

Graph 3.13a:Deleveraging forces in the Danish 
household sector, actual debt and 
sustainable debt

160

150

140

130

120

110

100

90

80

70

60

Graph 3.13b:Household debt ratio and volatility in 
private consumption 

2.5

2.3

2.1

1.9

1.7

1.5

1.3

1.1

0.9

0.7

,
h
t
w
o
r
g
n
o
i
t
p
m
u
s
n
o
c

e
t
a
v
i
r
p
n

i

i

n
o
i
t
a
v
e
d
d
r
a
d
n
a
t
S

0
1
0
2
-
5
9
9
1

ES

FI

US
PTl

DK

NL

UK

R² = 0.2941

NO

SE

AU

JP
CA

IT

FR

DE

AT

BE

50

100

150

200

250

Debt to GDP

Sustainable debt to GDP

Average household debt ratio, 1995-2010

Source: Commission services (Graph 3.13a), Statistics Danmark (Graph 3.13b)

in  asset  prices  which  would  allow  for  an  increase 
in  the  sustainable  level  of  debt).  The  adjustment 
towards  a  more  sustainable  level  of  indebtedness 
will  depend  crucially  on  the  interaction  of  these 
two forces.  

As  households  in  Denmark  are  in  the  process  of 
reducing  their  debt  ratios,  while  the  housing 
market is simultaneously stabilising, the household 
debt  imbalance  is  in  the  process  of  unwinding.  In 
general,  bringing  the  debt  down  to  a  sustainable 
level before potential debt distress occurs is highly 
desirable,  but  it  can  also  be  costly  in  terms  of 
growth and employment. In the case of Denmark, 
however,  the  process  is  happening  at  a  relatively 
slow pace. This  may be appropriate since the risk 
of debt distress is rather low, especially the risks to 
financial stability. In conclusion, the impact of the 
deleveraging  process  on  the  economy  appears  to 
be  relatively  moderate  and  is  unlikely  to  be  a 
significant cause for concern in the coming years.  

Although  the  risks  from  deleveraging  needs  to 
economic stability are low, the level of household 
debt and its links to real estate make the economic 
position of Danish households sensitive to changes 
in  interest  rates  and  fluctuations  in  house  prices. 
Denmark  recorded  some  of  the  largest  swings  in 
private  consumption  among  a  range  of  countries 
over  the  period  1995-2010  (Graph  3.13b).  Such 
large fluctuations can have an impact on the speed 
with  which  the  economy  can  recover.  Hence,  in 
order  to  avoid  such  harmful  fluctuations  in  the 
future,  it  would  be  prudent  to  address  potential 

28 

pro-cyclicalities  in  the  housing  market  and,  thus, 
levels. 
the  build-up  of  unsustainable  debt 
Lowering  incentives  to  take  up  debt  would  also 
contribute in this respect. 

3.2.3.  Measures  taken  to  reduce  risks  in  the 

coming years 

interest 

loans,  which  would 

The  Danish  authorities  and  the  mortgage  credit 
institutes  have  taken  a  number  of  measures  to 
improve  the  robustness  of  the  mortgage  credit 
system and to limit the incentives to take up debt. 
In particular, until now all the refinancing auctions 
have been taking place once a year, in December. 
This  posed  a  particular  challenge  related  to  the 
larger  share  of  adjustable-rate  loans,  in  particular 
regarding 
rate  hikes.  Consequently, 
adverse  developments  in  the  market  could  lead  to 
an  increased  risk  at  the  time  of  refinancing  of 
adjustable-rate 
have 
undesirable effects on house owners and mortgage 
institutes. To counter this possibility, the mortgage 
institutes  have  taken  measures  to  spread  auctions 
to refinance adjustable-rate loans over the  year  so 
as  to  reduce  the  refinancing  risk.  Danmarks 
Nationalbank  and  the  industry  agreed  on  this 
the 
already 
refinancing  auctions  are  taking  place  three  times 
per year, in December, April and October. In 2012, 
almost  half  of  the  loans  were  refinanced  in  April 
and  October.  From  2018  onwards,  they  will  take 
place also in July. As a result, refinancing auctions 
will  be  spread  over  the  year  and  therefore  the 
above mentioned potential risks will be limited.  

in  2009.  From  2010 

to  2017, 

 
 
 
 
 
 
 
 
The EU's capital requirement directive, which was 
implemented  in  Danish  law  in  July  2007,  also 
poses  a  potential  challenge  for 
the  Danish 
mortgage  institutes  since  it  requires  that  loan-to-
value  (LTV)  ratios  of  80%  are  respected  for  the 
entire  life-span  of  the  so-called  'Særligt  dækkede 
obligationer'  (SDOs).  These  new  bond  types, 
which  were  introduced  in  2007  alongside  the 
traditional 
bonds 
('Realkreditobligationer'  –  ROs),  now  constitute 
more than 60% of all covered bonds. In the current 
environment  of  low  inflation  and  very  moderate 
house  price  increases  the  automatic  downward 
pressure on the LTV ratio, as observed prior to the 
crisis,  is  no  longer  as  strong  and  it  is  therefore 
relevant to investigate the mortgage institutes' need 
for additional collateral in case of a negative shock 
to house prices.  

mortgage 

credit 

The  mortgage  credit  institutes  themselves  have 
been undertaking measures to ensure the provision 
of additional collateral. For instance, Nykredit, the 
biggest  Danish  mortgage 
institute, 
introduced  a  so-called  two-layer  system  in  2012, 
whereby  the  LTV  ratio  of  deferred-instalment 
and/or adjustable-rate loans is limited to 60%. The 
remaining  20%  has  to  be  covered  by  loans  with 
instalments,  which  are  either  fixed-rate  loans  or 
variable  rate  loans ( 13)  with  an  interest  rate  fixed 
for  a  minimum  period  of  five  years.  Furthermore, 
another  big  mortgage  credit  institute,  Realkredit 
Danmark, has increased the contribution rates/fees 
('bidragssats')  for  the  variable  rate  and  deferred-
instalment  loans  significantly,  making  fixed  rate 
loans  and  loans  with  instalments  relatively  more 
attractive. Such measures will effectively limit the 
share  of  deferred-instalment  and  adjustable-rate 
loans. Developments in the shares of variable rate 
loans  and  deferred-instalment  loans  have  indeed 
shown signs of a stabilisation in recent years. 

lenders 

The  government  has  announced  new  rules  to 
discourage  mortgage 
from  providing 
variable rate and deferred-instalment mortgages to 
financially weak borrowers. All borrowers have to 
be  eligible  for  a  loan  with  a  fixed  rate  with 
instalment in order to receive a variable-rate and/or 
deferred-instalment 
loan.  While  mortgage 
institutes  already  apply  such  rules  in  practice  the 

(13)  Note that these loans are called variable-rate loans although 
the interest rate is fixed for 5 years before it is necessary to 
refinance. 

3. In-Depth Analysis of Selected Topics 

measures  will  provide  a  common 
formal 
framework.  Furthermore,  to  give  borrowers  better 
information  about  the  riskiness  of  their  loans,  the 
government is about to implement a risk-labelling 
scheme  (a  so-called 
light  system  as 
individual  loans  will  be  labelled  using  the  three 
colours  of  a  traffic  light)  for  housing  mortgage 
loans. The traffic light is meant to be a supplement 
to the usual guidance to borrowers from the credit 
institutions. 

traffic 

On  the  other  hand,  although  cadastral  values 
continue  to  be  updated  every  two  years  to  reflect 
market  values,  the  property  value  tax  has  been 
fixed in nominal terms since 2002. Despite the fact 
that the property tax freeze is judged to be one of 
the factors that contributed to the emergence of the 
housing  bubble,  the  government  has  not  signalled 
any  intention  to  review  the  property  value  tax 
system. 

Finally, as a result of the 2009 tax reform, interest 
rate deductibility is being lowered over the coming 
years.  This  is  expected  to  attenuate  the  incentives 
to hold debt and thereby gradually bring down the 
household debt level, at least compared with what 
it  would  have  been  otherwise.  Indeed,  as  pension 
saving  schemes  are  expected  to  continue  to  be 
expanded over the coming years, this should create 
an upward pressure on the gross debt level without 
necessarily  affecting  the  net  financial  assets  of 
households.  Such  a  build-up  of  gross  household 
debt  should  be  sustainable  and  not  harmful  to  the 
economy. 

29 

 
                                                           
 
 
 
4. 

POLICY CHALLENGES 

The  analysis  in  the  previous  sections  has  shown 
that,  whereas  there  are  no  severe  imbalances  in 
Denmark, 
some  unbalanced  macroeconomic 
developments  can  be  detected  in  relation  to 
Denmark's competitiveness and household debt.  

in 

It  should  be  recalled  that  these  challenges  were 
identified  under  the  MIP  in  the  first  IDR  and 
relevant  policy  responses  were  reflected  and 
integrated 
country-specific 
the 
recommendations issued for Denmark in July. The 
assessment  of  progress  in  the  implementation  of 
those  recommendations  will  take  place  in  the 
context  of  the  assessment  of  the  Danish  National 
Reform  Programme  and  Convergence  programme 
this 
the  European  Semester.  Against 
under 
background, this section discusses remedial actions 
that  could  be  followed  to  address  the  challenges 
discussed in this In-Depth Review. 

Concerning  the  challenge  of  improving  external 
competitiveness  a  number  of  different  avenues 
can be considered: 

The 

problem 

performance. 

Price-cost  competitiveness  and  wages/labour 
costs: The analysis in this IDR has highlighted the 
importance of price competitiveness for Denmark's 
export 
of 
competitiveness and  weak performance of exports 
of goods in Denmark is linked to a rise in relative 
unit  labour  costs  as  a  result  of  relatively  high 
nominal  wage  growth  and  poor  productivity 
growth  over  the  last  decade.  The  key  aspect  of  a 
strategy  to  regain  price  competitiveness  in  the 
short  term  is  to  ensure  that  wage  developments 
evolve  along  a  moderate  path.  In  the  medium  to 
longer  term  implementing  measures  to  boost 
productivity growth such as removing obstacles to 
competition,  in  particular  in  the  services  sector, 
and removing barriers for firms’ use of knowledge 
and education will be essential. 

Recently,  wages  and  productivity  have  been 
developing in the right direction. Looking forward, 
nominal  ULC  are  forecast  to  grow  at  a  moderate 
pace, while real ULC are set to decline further, as 
productivity growth is expected to catch up to the 
pre-crisis  trend.  Nevertheless,  the  accumulated 
competitiveness  gap  will  take  time  to  correct  and 
this  process  will  require  relatively  low  wage 
growth and/or higher productivity growth for some 
time to come. 

to 

the 

the 

Non-price cost competitiveness: the analysis also 
revealed 
importance  of  non-price  cost 
competitiveness  in  explaining  the  performance  of 
geographical 
regard 
exports.  With 
specialisation,  Danish  goods  exports  are  still 
mainly  oriented 
slow-growing 
towards 
European  market.  A  reorientation  towards  more 
dynamic  regions  would  therefore  allow  a  faster 
growth  in  the  volume  of  goods  exported  and  a 
more  diversified  export  portfolio.  Conditions  in 
emerging  markets  are  often  more  challenging  for 
doing  business.  Hence,  Danish  companies  may 
need customised support from public authorities to 
facilitate  entry  into  new  markets.  In  light  of  the 
dynamically  changing  global  trade  environment 
and related challenges, it is important  that Danish 
exporters show flexibility and adaptability in order 
to  be  able  to  adjust  to  future  global  demand 
developments. 

by 

and 

obstacles 

removing 

government 

The  external  competitiveness  of  Denmark 
is 
expected  to  improve  with  the  measures  taken  by 
Danish  government  to  improve  the  educational 
to 
outcome 
competition.  The 
has 
current 
appointed a Productivity Commission to get to the 
heart  of  the  problem  and  come  up  with  proposals 
for  productivity-promoting  measures.  Continued 
focus  on  wage  moderation  and  productivity 
growth, 
further 
in 
improvements  in  cost  competitiveness,  should 
limit and eventually reverse the trend of declining 
export market shares of goods. 

continued 

resulting 

Concerning the challenge linked to the high level 
of  household  debt  and  the  implications  for  the 
real  economy,  there  is  a  number  of  issues  that 
can be considered:  

High level of household debt: the analysis above 
revealed  that  the  risks  posed  by  high  household 
debt  for  financial  stability  are  low  and  that  the 
consequences  of  the  rise  in  household  debt  have 
been  contained  so  far.  It  should  be  recalled  that  a 
country-specific recommendation from 2012 called 
for  considering  further  preventive  measures  to 
strengthen  the  stability  of  the  housing  market  and 
the financial system in the medium term, including 
by  taking  into  account  the  results  of  the  study  by 
the  Ministry  of  Business  and  Growth  on  the 
distribution  of  assets  and 
liabilities  across 
households.  According  to  this  study,  the  total 

31 

 
European Commission 

Macroeconomic Imbalances - Denmark 2013 

mortgage debt is concentrated amongst households 
with the highest incomes which are expected to be 
better  equipped  to  resist  any  likely  increase  in 
interest rates.  

context  of  slow  growth  and  a  fragile  housing 
market. Given the current situation in the housing 
market, a gradual approach could be warranted. 

Moreover, the Danish authorities and the mortgage 
credit  institutes  have  taken  a  number  of  measures 
to  improve  the  robustness  of  the  mortgage  credit 
system and to limit the incentives to take up debt, 
as described above. In addition, regarding financial 
stability,  the  framework  for  financial  supervision 
has  been  generally  strengthened,  in  particular  by 
the  introduction  of  tools  for  enhanced  monitoring 
of  individual  banks (14),  the  creation  of  a  bank 
resolution  regime  and  the  establishment  of  new 
for  macro-prudential 
institutions 
oversight(15)  of 
the 
economy. 

the  financial  sector  and 

responsible 

level,  at 

the  household  debt 

Economic  risks  related  to  the  build-up  of 
household  debt  levels:  these  risks  have  been 
addressed  in  conjunction  with  the  housing  boom. 
More specifically, changes to interest deductibility 
rules over the coming years are expected to reduce 
the  incentives  to  hold  debt,  thereby  gradually 
reducing 
least 
compared with what it would have been otherwise. 
However,  to  reduce  the  risk  of  an  unsustainable 
build-up  of  household  debt  and  prevent  future 
house  price  bubbles  further  measures  in  the  areas 
of  taxation  could  be  useful.  First,  the  pro-cyclical 
effects  of  and  the  debt  bias  in  housing  taxation 
could be corrected by realigning the property value 
tax  to  actual  market  values  or,  as  a  second  best 
option, by further phasing out the tax deductibility 
of  interest  payments.  This  would  not  only  restore 
neutrality  among 
investment  alternatives,  but 
would also free up fiscal space to reduce taxes that 
are more harmful to growth, such as labour income 
taxes  and  corporate  taxes.  In  addition,  removing 
the ceiling on the annual increase of the municipal 
land  value  tax  could  prevent  future  pro-cyclical 
effects of lagged tax increases.  

The timing and composition of any measures in the 
housing sector could be considered so as to avoid 
unnecessary  pro-cyclical  effects  by  depressing 
house  prices  and  household  consumption  in  a 

(14)  The  so  called  "supervisory  diamond"  phased  in  in  the 

period 2010-2012. 

(15)  The Systemic Risk Council and the interagency committee 
to  develop  prudential  arrangements  for  systemically-
important financial institutions (SIFIs). 

32 

 
                                                           
 
REFERENCES 

Danish  Economic  Council,  "Danish  Economy", 
Autumn 2009.  

European  Commission,  "Alert  Mechanism  Report 
– 2013",  European Commission, 2012. 

Danish  Economic  Council,  "Danish  Economy", 
Autumn 2010.  

Danish  Economic  Council,  "Danish  Economy", 
Autumn 2011.  

European  Parliament  and  Council,  "Regulation 
(EU)  No  1176/2011  of  the  European  Parliament 
and  of 
the  prevention  and 
correction of macroeconomic imbalances", Official 
Journal of the European Union, 2011. 

the  Council  on 

Danish  Economic  Council,  "Danish  Economy", 
Spring 2008.  

International Monetary Fund, "Euro Area Policies; 
2012 Article IV Consultation", 2012.  

Danish  Ministry  for  Economic  Affairs  and  the 
Interior, "Economic Survey", December 2012.  

Ministry of Business and Growth, "Gældsudgifter i 
husholdninger med realkreditlån", 2013. 

Realkreditradet  Association  of  Danish  Mortgage 
af 
Banks, 
refinansieringsauktioner", August 2012. 

"Prognose 

spredning 

for 

Danish  Ministry  of  Finance,  "Budget  Outlook  3", 
December 2012.  

Danmarks  Nationalbank, 
Review", 2011.  

"Financial  Stability 

Danmarks  Nationalbank, 
Review", 2012.  

"Financial  Stability 

Danmarks  Nationalbank,  "Monetary  Review  1st 
Quarter" Part 1 and 2, 2012a. 

Danmarks  Nationalbank,  "Monetary  Review  2nd 
Quarter" Part 1 and 2, 2012b. 

Danmarks  Nationalbank,  "Monetary  Review  3rd 
Quarter" Part 1 and 2, 2012c. 

Danmarks  Nationalbank,  "Monetary  Review  4th 
Quarter" Part 1 and 2, 2012d. 

Danske  Bank,  "Nordic  Outlook;  Economic  and 
Financial Trends", December 2012.  

Economic  and  Financial  Affairs,  "European 
Economy; 
Imbalances- 
Macroeconomic 
Denmark", European Commission, 2012. 

Economic  and  Financial  Affairs,  "European 
the  surveillance  of 
Economy;  Scoreboard  of 
European 
macroeconomic 
Commission, February 2012. 

imbalances", 

European  Commission,  "Assessment  of  the  2011 
national  reform  programme  and  convergence 
programme  for  Denmark",  Commission  Staff 
Working Paper, 2011. 

33 

 
 
 
K
C
-
A
H
-
1
3
-
1
3
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N
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N