COMMISSION STAFF WORKING DOCUMENT Country Report Denmark 2017 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2017 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011 {COM(2017) 90 final} {SWD(2017) 67 final to SWD(2017) 93 final}
Date: 2017-02-22
Institutions: European Commission, Secretariat-General
Subjects: Denmark, EU employment policy, EU investment, economic development, economic recovery, euro area, fiscal policy, macroeconomics, multilateral surveillance, structural adjustment

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 22.2.2017  SWD(2017) 70 final   COMMISSION STAFF WORKING DOCUMENT Country Report Denmark 2017 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP  2017 European Semester: Assessment of progress on structural reforms,  prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011  {COM(2017) 90 final} {SWD(2017) 67 final to SWD(2017) 93 final}   
 
 
CONTENTS 

Executive summary 

1. 

2. 

Economic situation and outlook 

Progress with country-specific recommendations 

3. 

Reform priorities 

Financial sector 

3.1.  Public finances and taxation 
3.2. 
3.3. 
3.4. 
3.5. 

Sectoral policies 

Investment 

Labour market, education and social policies 

A.  Overview table 

B.  MIP Scoreboard 

C. 

Standard tables 

References 

LIST OF TABLES 

1.1. 

2.1. 

B.1. 

Key economic, financial and social indicators 

Summary table of the 2016 CSR assessment 

The MIP Scoreboard for Denmark 

C.1. 

Financial market indicators 

C.2. 

Labour market and social indicators 

C.3. 

Expenditure on social protection benefits and social inclusion indicators 

C.4. 

Product market performance and policy indicators 

C.5.  Green growth 

LIST OF GRAPHS 

1.1. 

1.2. 

1.3. 

Contributions to GDP growth in Denmark 

Contributions to potential growth - Denmark 

Gross fixed capital formation Denmark vs EU19 

1 

4 

12 

15 

15 
17 
22 
29 
37 

41 

44 

45 

50 

11 

13 

44 

45 

46 

47 

48 

49 

4 

4 

5 

 
 
 
1.4. 

1.5. 

1.6. 

1.7. 

1.8. 

1.9. 

Investment components - Denmark 

Consumer price inflation 

Flows in the Danish labour market 

Export market share breakdown - Denmark 

Breakdown of the current account - Denmark 

Net Lending/Borrowing by Sector - Denmark 

1.10. 

Breakdown of the real effective exchange rate for Denmark 

1.11.  Average annual productivity growth 

3.1.1. 

Inactivity trap for low income earners in EU Member States, 2015 

3.1.2.  Environmental tax revenues percentage of total revenues from taxes and social 

contributions (excluding imputed social contributions) in 2014 

3.2.1.  Real house price increase (Index 2010=100) 

3.2.2. 

Leverage, Households - Denmark (2015) 

3.2.3.  Overvaluation gap with respect to price/income, price/rent and fundamental model 

valuation gaps 

3.2.4. 

Lending trends 

3.2.5.  Funding of non-financial corporations 

3.3.1.  Employment rate by country of birth (ages 20-64), 2015 

3.3.2.  Unemployment rate by educational attainment (quarterly) 

3.4.1.  Productivity growth 

3.4.2.  Contributions to productivity growth 

3.4.3.  Sector dynamics 1995-2015 

3.4.4.  Business investment to GDP ratio 

3.4.5.  Churn rate (birth rate + death rate) of enterprises by sector, 2011 

3.4.6.  Digitisation of enterprises 

3.5.1.  Denmark - development of business R&D intensity and public R&D intensity, 2000-2015 

3.5.2.  Public expenditure on R&D financed by business enterprise as % of GDP (1) versus BERD 

intensity (business enterprise expenditure on R&D as % of GDP) 

LIST OF BOXES 

2.1. 

Contribution of the EU budget to structural change in Denmark 

3.3.1.  Selected highlights - Flexicurity 

3.4.1. 

Investment challenges and reforms in Denmark 

5 

6 

6 

7 

8 

8 

9 

10 

15 

16 

17 

18 

19 

20 

21 

22 

23 

29 

29 

30 

30 

31 

32 

37 

38 

14 

28 

35 

 
 
 
 
 
 
 
EXECUTIVE SUMMARY 

This  report  assesses  Denmark’s  economy  in  light 
of  the  European  Commission’s  Annual  Growth 
Survey  published  on  16 November 2016.  In  the 
survey  the  Commission  calls  on  EU  Member 
States  to  redouble  their  efforts  on  the  three 
elements  of  the  virtuous  triangle  of  economic 
policy  –  boosting  investment,  pursuing  structural 
reforms and ensuring responsible fiscal policies. In 
so  doing,  Member  States  should  put  the  focus  on 
enhancing  social  fairness  in  order  to  deliver  more 
inclusive growth. 

The  recovery  of  the  Danish  economy  following 
the  crisis  has  been  relatively  slow  compared 
with  peer  countries.  Denmark  reached  its  pre-
crisis  level  of GDP  in  2014 and  the output  gap  is 
in  2016, 
still  negative,  estimated  at  -1.6 % 
according to the Commission winter 2017 forecast. 
However, looking at real GDP trends alone masks 
the  relative  strength  of  the  Danish  recovery. 
Employment  growth  has  been  particularly  robust 
since 2012 underpinned by strong expansion of the 
services sector. Denmark has also benefitted from 
improving terms of trade and increasing returns on 
its foreign assets, boosting the wealth of the Danes. 
The modest recovery is expected to continue to be 
driven  by  domestic  demand  with  a  growing 
contribution  from 
is 
expected to grow by 1.5 % in 2017 and by 1.8 % in 
2018. 

investment.  Real  GDP 

investment 

As  a  proportion  of  GDP, 
in 
Denmark  remains  below  the  EU  average. 
Despite  a  recent  pick-up,  business  investment  is 
well  below  its  pre-crisis  peak  in  2008,  which  can 
partly  be  attributed  to  the  weakness  of  the  sea 
freight  business  and  North  Sea  oil  and  gas 
extraction. Investment is expected to pick up in the 
coming years. Business investments are forecast to 
gain pace as the maturing recovery leads to higher 
capacity  utilisation.  Robustly  growing  property 
prices  are  forecast  to  provide  further  impetus  for 
housing  investment  in  the  coming  years.  Public 
investment, which was used actively to support the 
economy  during  the  crisis  and  which  reached  a 
historically high level of 3.9 % of GDP in 2014, is 
expected  to  continue  a  gradual  decline  towards 
levels more in line with historical averages.  

At  9.2 %  of  GDP  in  2015,  the  current  account 
surplus  remains  very  high.  The  high  surplus 
partly reflects adjustment to the crisis, as business 
and  housing  investments  declined  and  corporate 

1 

savings  have  increased.  Household  savings  are 
also  growing,  in  particular  in  the  form  of  pension 
funds.  Since  investments  are  forecast  to  gradually 
pick  up  in  the  coming  years,  the  current  account 
surplus is expected to decline at a moderate pace. 

Danish  competitiveness  indicators  do  not  point 
to major challenges in terms of competitiveness. 
Both  the  real  effective  exchange  rate  and  unit 
labour costs have developed in line with the main 
trading  partners  in  recent  years.  This  has  been 
supported by domestic prices growing more slowly 
than in the main trading partners.  

Labour  market  conditions  have  improved  in 
recent years. The employment rate is estimated to 
have  increased  to  77.0 %  in  2016,  just  above  the 
historical  1993-2015  average  of  76.9 %.  The 
unemployment rate, which has remained relatively 
low during the crisis, has fallen steadily since 2011 
and is expected to fall further, as economic growth 
picks  up.  The  Danish  authorities  have  adopted  a 
series of labour market reforms in recent years that 
focus  particularly  on  increasing  work  incentives 
and  improving  the  efficiency  of  active  labour 
market  policies.  These  could  contribute 
to 
achieving the Europe 2020 employment target and 
to  the  sustainability  of  the  advanced  Danish 
welfare model. 

House  prices  have  been  rising  steadily  in  real 
terms  since  they  hit  their  lowest  point  in  2012. 
House price developments have been uneven both 
in  geographical 
terms  and  across  housing 
segments.  The  rise  has  been  mainly  driven  by 
urban  areas:  prices  in  Copenhagen  have  climbed 
by  47 %  since  Q2  2012  compared  to  a  national 
average  of  19 %.  This  trend  can  be  explained  by 
strong  fundamentals  such  as  rising  population, 
robustly rising disposable incomes and historically 
low mortgage interest rates but also by supply side 
inefficiencies in certain areas.  

the 

2016 

Overall,  Denmark  has  made  some  progress  in 
addressing 
country-specific 
recommendations.  Some  progress  was  made  on 
easing  restrictions  for  retail  establishment  and  on 
removing 
remaining  barriers  posed  by 
authorisation  and  certification  schemes  in  the 
construction  sector.  Some  progress  has  also  been 
made  on 
incentivising  cooperation  between 
businesses and universities. 

the 

 
Executive summary 

the  EU,  workers  above  the  age  of  60,  young 
people and people with reduced work capacity 
and  disabilities.  Recent  reforms  of  active 
labour  market  policies  have  ensured  more 
individualised support for the unemployed and 
vulnerable  persons.  The  2015  reform  of  the 
unemployment insurance system, followed by a 
number  of  policy  initiatives  in  2016,  seeks  to 
improve  the  incentives  to  work.  These  include 
capping  the  social  assistance,  introducing  a 
work  requirement  for  social  benefit  recipients 
and  reducing  social  benefits  for  those  who 
recently resided outside Denmark. 

  There  is  a  shortage  of  labour  for  certain 
types  of  workers.  The  growing 
lack  of 
workers with a vocational education constitutes 
a  challenge  for  some  sectors,  in  particular  for 
the  construction  sector.  Recent  reforms  of 
active  labour  market  policies  and  educational 
reforms  seek  to  address  this  issue.  In  2016, 
tripartite  negotiations  resulted  in  employers 
committing  to  create  8 000-10 000  additional 
apprenticeship places by 2025, with the overall 
aim of improving the quality and attractiveness 
of  vocational  education  and  thereby  meeting 
the  demanded  skills  composition  of  workers. 
Furthermore,  in  the  area  of  digitally-skilled 
workforce,  the  share  of  ICT  specialists  has 
been  steady  in  the  last  years.  These  skills  are 
particularly  relevant  to  foster  the  capacity  of 
the  Danish  economy  to  further  innovate  and 
grow. 

  The  government  has  introduced  a  series  of 
policy  measures  with  the  overall  purpose of 
improving  refugees'  integration  into  the 
labour  market  and  reducing  the  number  of 
asylum seekers. Focus is on early intervention, 
individual  skills  assessment  and  job-oriented 
integration programmes. A cash bonus scheme 
applies for companies that hire refugees. 

  School  education  outcomes  in  Denmark  are 
above  the  EU  average.  According  to  the 
OECD  PISA  2015,  Danish  students  perform 
better  than  the  OECD  average  in  terms  of 
reading, mathematics and science. Performance 
in  mathematics 
improved 
to  2012,  while 
significantly 
performance  in  reading  and  science  improved 
slightly.  However,  the  situation  of  students 

in  particular 

compared 

Denmark  has  either  reached  or  is  making  good 
progress towards its national Europe 2020 Strategy 
targets  on  employment,  R&D,  greenhouse  gas 
emissions, renewable energy, early school leaving, 
tertiary  education  and  energy  efficiency.  It  may, 
however,  face  challenges  in  achieving  its  national 
target on reducing the number of people at risk of 
poverty or social exclusion. 

The  main  findings  of  the  analysis  in  this  report, 
and the related policy challenges, are as follows: 

  Although  house  prices  on  national  average 
have  been  growing  in  line  with  their  main 
fundamentals, they have surged in the main 
urban  areas.  The  increase  has  not  only  been 
driven  by  strong  fundamentals  but  also  by 
supply  side  inefficiencies  in  particular  in  the 
main cities. In addition, the current property tax 
system  is  not  equipped  to  reduce  house  price 
swings  and  helps  exacerbate  rising  regional 
house 
possible 
overvaluation of house prices in certain regions 
of  Denmark  could  pose  a  risk  of  a  disorderly 
and  harmful  correction  in  the  medium  term, 
with  a  potential  impact  on  the  banking  sector 
and the real economy. Housing shortages in the 
main urban areas can hamper labour mobility.  

differences.  A 

price 

  Despite  positive  developments  over  the  last 
years, the  large  household debt could  imply 
a  potential  challenge  to  financial  stability. 
Although  household  debt  as  a  proportion  of 
GDP  or  disposable  income  remains  one of  the 
highest  in  the  EU,  it  has  been  decreasing 
continuously  over  recent  years,  in  particular 
between  2014  and  2016.  A  significant  portion 
of the household debt is related to housing, and 
gross  debt  is  compensated  by  housing  assets 
and  pension  wealth.  Nevertheless,  pension 
funds  are  accessible  only  upon  retirement  and 
mostly  through  monthly  instalments.  The  bulk 
of  the  pension  funds'  assets  is  held  in  equities 
and in bonds and is thus subject to fluctuations 
in  value.  Therefore,  Danish  households' 
balance  sheet  can  be  vulnerable  to  shocks 
affecting their debt servicing ability.  

  While  employment  rates  are  high  and 
unemployment is low, certain groups remain 
on  the  margins  of  the  labour  market.  This 
particularly  applies  to  migrants  from  outside 

2 

 
 
with  a  migrant  background  continues  to  be  of 
concern.  There  is  a  large  performance  gap 
between  non-immigrants  and  first-generation 
immigrants. Furthermore, second-generation do 
not  appear  to  be  catching  up  with  natives 
without a migrant background. 

In 

2014, 

trajectory. 

including, 
in 

  While  the  Danish  economy’s  productivity 
level  is  among  the  highest  in  the  EU, 
productivity  growth  has  been  on  a 
downward 
the 
Productivity  Commission  pointed  to  a  broad 
range  of  possible  impediments  to  productivity 
growth, 
particular,  weak 
in 
competition 
the  domestically  oriented 
services  sector,  weaknesses  in  the  Danish 
education system, weak productivity growth in 
the  public  sector  and  unexploited  potential  to 
foster 
the  commercialisation  of  university 
research  outputs  due  to  certain  regulatory 
barriers  in  the  relation  with  businesses.  Even 
though R&D spending relative to GDP is high 
in  Denmark,  it  is  not  translated  adequately  to 
economic growth, productivity and investment. 
Investment needs in the transport infrastructure 
persist, stemming from projected faster growth 
of  freight  and  passenger  transports  than  of  the 
overall  economy  and  from  a  need  to  meet 
higher  climate,  security  and  performance 
requirements. 

at 

sizes 

entry, 

company 

  Danish  start-ups  are  characterised  by  low 
start-up size, low start-up ratios and low net 
job creation. Denmark has one of the smallest 
average 
and 
significantly lower than in many other Member 
States.  Start-up  ratios  and  net  job  creation  in 
Denmark continue to be low. For instance, the 
net job creation by entrants that survive at least 
three  years  represents  around  2.5 %  of  overall 
employment,  lower  than  in  other  Member 
States.  Scaling-up  is  a  challenge,  because  new 
businesses  do  not  have  the  capacity  or  the 
incentives to grow. 

could 

  The  government  has  taken  measures  to 
increase  competition  in  the  services  sector 
that 
increase  productivity  and 
investment.  Services  account  for  more  than 
60 %  of  Danish  exports  in  value  added  terms. 
Services'  share  of  total  inward  investments  is 
low 
also 

indicating 

relatively 

high, 

Executive summary 

in  services 

restrictiveness 
trade.  However, 
Denmark  can  improve  the  efficiency  of  its 
economy  by  prioritising  reforms  that  enhance 
competition in services markets, particularly by 
focusing on the remaining horizontal measures 
that  affect  all  types  of  services  as  well  as 
certain 
specific 
restrictions  remain.  Construction  and  retail 
trade  are  in  the  process  of  being  opened  up  to 
more  competition.  Similar  developments  in 
other  services,  including  wholesale  trade  and 
taxi  services,  have  the  potential  to  boost 
productivity  and  generate  more  employment 
opportunities. 

sectors  where 

services 

3 

 
 
 
 
1.  ECONOMIC SITUATION AND OUTLOOK 

GDP growth  

Economic  growth  slowed  in  2016.  According  to 
the  Commission’s  winter  2017  forecast,  GDP  is 
expected to have grown by 1.0 % in 2016, mainly 
driven  by  domestic  demand,  in  particular  by 
private consumption growth. The gradual recovery 
of the Danish economy is expected to continue in 
the near-term, with real GDP forecast to accelerate 
to 1.5 % in 2017 and to 1.8 % in 2018 (Graph 1.1). 
The  economic  recovery  is  expected  to  be  kept 
driven by domestic demand with an increase in the 
contribution from investment. 

Graph 1.1:  Contributions to GDP growth in Denmark 

Potential growth 

Potential GDP growth has picked up gradually 
since  2013.  In  2016,  potential  GDP  growth  is 
estimated  to  have  been  around  1.2 %  (Graph  1.2) 
and is forecast to remain at  this level for the next 
couple  of  years.  The  pick-up  in  potential  growth 
since 2013 has been primarily due to an increase in 
total  working  hours.  The  contribution  of  capital 
accumulation,  which  was  a  key  driver  of  the  pre-
crisis  growth,  is  forecast  to  remain  stable,  but 
significantly  below  the  pre-crisis  levels.  The 
contribution  of  total  factor  productivity,  which 
reflects  how  efficiently  labour  and  capital  inputs 
are combined, is expected to improve slightly. 

Graph 1.2:  Contributions to potential growth - Denmark 

Source: European Commission 

GDP  growth  has  been  relatively  modest 
following  the  crisis.  The  output  gap  is  still 
negative,  estimated  at  –1.6 %  in  2016  in  the 
Commission  winter  2017  forecast.  However, 
subdued  real  GDP  trends  somewhat  mask  the 
relative strength of the Danish recovery according 
to  alternative  indicators.  Employment  growth, 
underpinned  by  the  strong  expansion  of  the 
services  sector,  has  been  particularly  robust  since 
2012. Denmark has also benefited from improving 
terms of trade and increasing returns on its foreign 
assets, increasing the wealth of the Danes. Taking 
into  account  net  factor  incomes  from  abroad,  per 
capita GNI developed much more favourably than 
per capita GDP over the past decade. This trend is 
expected to continue in the short term. 

Source: European Commission  

Domestic demand  

Private  consumption  has  been  an  important 
driver  of  GDP  growth.  It  has  been  underpinned 
by  rising  disposable  incomes,  strong  growth  in 
employment  and  wages  as  well  as  low  inflation. 
The  net  asset  position  of  households  has  also 
improved,  partly  due  to  the  increase  in  house 
prices  since  mid-2012.  Consumer  confidence 
remains at levels consistent with continued growth 
in  private  consumption,  yet  has  been  declining 
since  the  spring  of  2015  and  may  therefore 
represent a downside risk for private consumption. 
The household savings rate is estimated to stand at 
around 11 % of disposable income in 2016, which 
is  high  compared  to  the  historical  average  of  7 % 
of disposable income over the past 15 years. 

4 

-8-6-4-202462009201020112012201320142015201620172018Net exportsInventoriesInvestmentGovernment consumptionPrivate consumptionGDP (y-o-y%)forecastpps.-0,50,00,51,01,52,020042005200620072008200920102011201220132014201520162017201820192020Capital Accumulation ContributionTFP ContributionTotal Labour (Hours) ContributionPF Potential Growthy-o-y %  
 
 
1. Economic situation and outlook 

Investment 
subdued. 
activity  has  been 
Investment  as  a  share  of  GDP  was  broadly  at  the 
EU average levels until 2008, but it took a severe 
hit  in  the  crisis  when  it  fell  across  all  categories. 
Total  investment  (gross  fixed  capital  formation) 
has been slowly increasing for the last 5 years, but 
at  19.2 %  of  GDP  in  2015  its  level  remains  still 
relatively  low,  and  slightly  lower  than  the  euro 
area average of 19.7 % of GDP (see Graph 1.3).  

Graph 1.3:  Gross fixed capital formation Denmark vs EU19 

capacity utilisation. Robustly growing house prices 
(see  Section  3.2)  are  forecast  to  provide  further 
impetus  for  dwellings  investment  in  the  coming 
investment,  which 
years  (Graph  1.4).  Public 
actively  supported  the  economy  during  the  crisis 
and  which  reached  a  historically  high  level  of 
3.9 %  of  GDP  in  2014,  is  expected  to  continue 
declining  gradually  as  a  share  of  GDP  towards 
levels  more  in  line  with  historical  averages.  The 
new  government,  which 
in  end 
November  2016,  has  established  a  new  Minister 
for Public Sector Innovation. 

took  office 

Graph 1.4: 

Investment components - Denmark 

Source: Eurostat 

Consumer  price  inflation  remains  low,  but  is 
expected  to  pick  up.  The  harmonised  index  of 
consumer prices (HICP) was flat in 2016. Inflation 
has been dragged down by a fall in prices of non-
energy  industrial  goods  and  of  energy.  Core 
inflation,  which  excludes  energy  and  unprocessed 
foods,  grew  by  a  mere  0.3 %  in  2016.  HICP 
inflation is expected  to pick  up  as  the  effect  from 
the decline in energy prices tapers off and capacity 
utilisation  increases.  Consumer prices are forecast 
to  increase  by  1.4 %  in  2017  and  1.6 %  in  2018 
(Graph 1.5). 

Source: Eurostat 

The  investment  components  show  diverging 
trends  since  the  crisis.  While  machinery  and 
equipment investment accelerated somewhat since 
2012,  they  are  still  approximately  12 %  below 
their  pre-crisis  peak  in  2007,  and  also  below  the 
EU  average.  Sluggish  business  investments  can 
partly  be  attributed  to  the  weakness  of  the  sea 
freight  business  and  North  Sea  oil  and  gas 
extraction.  Construction 
investment  has  been 
growing  in  line  with  GDP  since  2011  although 
they  are  approximately  20 %  below  their  peak  in 
in 
2007.  Considering 
particular  in  dwellings  in  the  pre-crisis  period, 
construction investments appear to have stabilised 
at  more  sustainable  levels  now.  Other  investment 
(which also includes R&D investments) is the only 
investment  component  that  has  been  relatively 
stable  compared  to  its  share  of  GDP  hovering 
around 5 % of GDP since 2010. 

the  overinvestments 

Investment is expected to pick up in the coming 
years.  Business  investments  are  forecast  to  gain 
pace  as  the  maturing  recovery  leads  to  higher 

5 

0510152025average2004-2008average2011-2015DwellingsOther constructionEquipmentOther investmentDwellings (EA19)Other construction (EA19)Equipment (EA19)Other investment (EA19)Total 2015Total (EA19) 2015% of GDP5,07,09,011,013,015,017,019,021,023,025,034567892003200420052006200720082009201020112012201320142015201620172018DwellingsEquipmentOther investmentNon-resid. const.Total investments (rhs)% of GDP% of GDP 
 
 
1. Economic situation and outlook 

unemployed people. This is to be seen in the light 
of an increase in the activity rate, as new groups of 
people who have previously been inactive enter the 
labour  market  (Graph  1.6).  The  activity  rate 
increased  from  78.5 %  in  2015  to  80.2 %  in  the 
third  quarter  of  2016.  Despite  the  increasing 
activity  rate,  the  increasing  surplus  of  unskilled 
labour  and  the  lack  of  workers  with  a  vocational 
education  constitute  an  important  challenge  for 
Denmark.  According  to  the  Economic  Council  of 
the Labour Movement think-tank, there will be an 
estimated  shortage  of  70 000  vocational  workers 
alongside a surplus of 65 000 unskilled workers in 
2025  (Arbejderbevægelsens  Erhvervsråd,  2016a). 
Furthermore,  lower  employment  rates  can  be 
observed  for  those  on  the  margins  of  the  labour 
market,  and  better  inclusion  of  vulnerable  groups 
such  as  migrants,  young  people  and  people  with 
reduced  work  capacity  and  disabilities  remains  a 
key  challenge  (see  Section  3.3  and  also  Aasen  et 
al. 2016). 

Graph 1.6: 

Flows in the Danish labour market 

(1) The graph shows average quarterly flows between 
employment, inactivity and unemployment in the period 
Q2-2015 to Q2-2016. For example, each quarter on average 
60 000 persons went from unemployment to employment. 
Source: Eurostat 

Long-term  unemployment  remains 
low.  At 
1.7 %  of  the  active  population  in  2015,  long-term 
unemployment  (unemployed  for  more  than  12 
months) remained low, although it was higher than 
the 1999-2015 average of 1.2 %. The level of long-
term  unemployment  was  one  of  the  lowest  in  the 
EU  in  2015  after  Sweden  and  the  UK  (see  also 
long-term 
Bjørsted 

al  2016).  Keeping 

et 

Graph 1.5:  Consumer price inflation 

Source: European Commission 

Labour market  

Employment  trends  have  remained  strong 
despite  weak  GDP  growth.  Employment  growth 
has  gathered  steam,  growing  every  quarter  since 
the  beginning  of  2013,  expanding  at  an  estimated 
rate  of  1.5 %  in  2016.  This  strong  performance, 
which  has  been  driven  by  private  sector 
employment — in particular the services sector — 
contrasts  with  the  moderate  recovery  of  GDP. 
However,  this  is  due  to  the  weak  performance  of 
sectors  with  high  capital  intensity,  such  as  the  oil 
and  gas  extraction  sector  and  the  shipping  sector, 
labour-intensive  sectors  have 
whereas  more 
performed better. 

is 

The  employment  rate 
increasing.  The 
employment  rate  increased  to  76.5 %  in  2015, 
close  to  the  historical  (1993-2015)  average  of 
76.9 %.  The  employment  rate  reached  a  low  in 
early  2014,  and  has  shown  a  clear  upward  trend 
since  then.  In  the  short  term,  employment  is 
forecast  to  continue  growing  due  to  the  ongoing 
recovery  of  the  economy  and  increased  labour 
supply  due  to  a  series  of  reforms  implemented  in 
recent years. 

The  fall  in  the  unemployment  rate  has  stalled. 
The  unemployment  rate,  which  has  been  on  a 
downward trend since early 2012, has flattened out 
the 
at  close 
unemployment rate is higher than before the crisis, 
at  a  level  that  corresponds  to  about  180 000 

to  6 %  since  2015.  However, 

6 

-1,00,01,02,03,04,020082009201020112012201320142015201620172018y-o-y %Core inflationEnergy and unpr. foodHICPforecast39,00098,00060,00037,000104,00060,000Inactivity1,185,000Employment2,638,000Unemployment 83,000 
 
 
1. Economic situation and outlook 

Graph 1.7: 

Export market share breakdown - Denmark 

Source: Eurostat 

relatively  weak 

reflects  weak  domestic  demand, 

The current account surplus remains high. The 
current account balance stood at 9.2 % of GDP in 
2015,  slightly  higher  than  in  2014(2).The  high 
surplus 
in 
particular 
investments,  high 
savings in the corporate sector and higher yields on 
investments  abroad  than  those  in  Denmark.  The 
trade  surplus  in  goods  has  been  relatively  stable, 
while the contribution of services and net incomes 
to the current account balance has been increasing 
over  recent  years  (Graph  1.8).  Since  2004  the 
yields on assets held abroad have been higher than 
on  liabilities  held  by  foreigners  in  Denmark, 
resulting  in  a  growing  contribution  of  net  income 
to  the  current  account  balance  (see  also  Leszczuk 
and Pojar, 2016). 

(2)  The  current  account  surplus  was  revised  upwards  in 
November 2016 from 6.7 % of GDP to 9.2 % of GDP for 
the  year  2015.  The  revision  was  partly  due  to  an 
improvement  in  the  reporting  on  foreign  trade  conducted 
by Danish companies operating abroad, but also larger than 
expected primary income. 

of 

share 

unemployment.  The 

unemployment low is important in order to reduce 
the negative effects on human capital during spells 
of 
youth 
unemployment  also  remains  low  (11.1 %  in  the 
first  half  of  2016),  as  well  as  the  share  of  young 
people (15-24 years) not in employment, education 
or  training  (NEETs),  which,  though  increasing, 
the  European  average 
remains  clearly  below 
(6.2 % as compared with the EU average of 12.0 % 
in 2015). 

Social developments 

in 

Income  inequality  has  increased  slightly  but 
remains  low  compared  to  the  EU  average. 
Measured  by  the  S80/S20  ratio  there  has  been  a 
modest  increase  in  income  inequality  in  Denmark 
in  the  2008-2015  period  (from  3.6  to  4.1).  These 
the  Gini 
developments  are  also  reflected 
coefficient  of  equivalised  disposable 
income, 
which  increased  from  25.1  to  27.4  in  the  same 
period. The worsening has been driven by income 
growth in the upper end of the distribution, which 
however  remains  comparatively  equal  by  EU 
standards.  While  market  income  inequality  is 
typically  high  in  Denmark,  the  tax  and  benefit 
system has been effective in counteracting this, as 
shown  by  a  large  gap  between  inequality  before 
and after taxes and transfers(1).  

External position and competitiveness 

Export growth has picked up in the first half of 
2016,  after  a  weak  performance 
in  2015. 
Nevertheless,  Denmark  has  suffered  a  substantial 
loss of export market shares over the past decade. 
This  loss  has  been  concentrated  in  goods  markets 
and  has  not  been  compensated  by  the  limited 
market share gains in services exports (Graph 1.7). 
Total exports are expected to continue growing in 
2017  and  2018,  broadly  in  line  with  world  trade, 
thus  limited  market  share  losses  are  forecast  to 
persist for the coming years. 

(1)  While the Gini index on 'disposable income before tax and 
transfers' represents inequality levels before the transfers in 
cash  and  the  payment  of  taxes,  the  Gini  index  on 
'disposable  income  after  tax  and  transfers'  also  takes  into 
account  the  redistributive  impact  of  taxes  and  cash 
transfers  (including  social  security  cash  transfers).    The 
difference  between  the  two  Gini  indexes  can  be  used  as  a 
measure of the redistributive impacts of taxes and transfers. 

7 

-15-10-5051020062007200820092010201120122013201420152016Contribution to EMS: goodsContribution to EMS: servicesExport market share growth yoyy-o-y %  
                                                           
 
                                                           
1. Economic situation and outlook 

Graph 1.8: 

Breakdown of the current account - Denmark 

normalises  and  the  output  gap  closes,  the  current 
account  surplus  is  expected  to  decline  to  around 
7 %  over  the  coming  years.  Boosting  investments 
and  increasing  productivity  could  help  Denmark 
further  strengthen  its  economic  growth,  which 
would  result  in  a  gradual  correction  of  the  high 
current account surplus. 

Graph 1.9:  Net Lending/Borrowing by Sector - Denmark 

Source: European Commission 

to 
(such 

increasing  corporate  savings  due 

The  current  account  surplus  in  Denmark  is 
mostly  due  to  high  corporate  savings  and 
continued  household  deleveraging.  Following 
the crisis, the current account balance was boosted 
by 
the 
as 
weakness  of  domestic  demand 
investments).  The  surplus  thus  partly  reflects  the 
adjustment  to  the  crisis,  which  is  reflected  in  a 
substantial  negative  output  gap.  In  cyclically 
adjusted terms (3), the current account surplus was 
close  to  5 %  of  GDP  in  2016.  As  business 
investments are gradually picking up in the coming 
years, the corporate sector is forecast to reduce its 
saving  rate.  Increased  household  savings  are 
projected to some extent to compensate for falling 
corporate  savings.  Households  switched  from  net 
borrowers  to  net  lenders  in  2015,  and  they  are 
forecast  to  become  an  important  driver  of  the 
increase in the current account surplus. This is due 
at  large  to  an  increase  in  households'  savings  and 
only  to  a  smaller  extent  to  a  drop  in  their 
investment.  Growing  savings  for  instance  in  the 
form  of  pension  savings  outweigh  the  growth  of 
household investments. 

(1) NPISH denotes non-profit institutions serving households 
Source: European Commission 

linked 

losses,  mainly 

Accumulated  current  account  surpluses  have 
led  to  a  high  net  international  investment 
position  (NIIP)  that  reached  42 %  of  GDP  in 
2015.  However,  the  NIIP  has  not  increased  since 
to 
2013,  as  valuation 
financial  derivatives  and  the  increasing  price  of 
Danish equity liabilities, offset the positive impact 
of the current account surplus. The current account 
surplus  necessary  for  a  stable  NIIP  over  the  next 
10  years  is  a  mere  1.2 %  of  GDP  in  the  case  of 
Denmark.  Therefore,  the  NIIP  is  expected  to 
increase  in  the  next  few  years,  although  not  on  a 
par  with  the  current  account  surpluses.  The  high 
net stock of foreign assets is expected to continue 
to  generate  significant  financial  revenues  in  the 
coming years, sustaining the high current surplus. 

As  a  result,  the  current  account  surplus  is 
expected to fall gradually from the current high 
levels  (Graph  1.9).  As  the  economic  cycle  slowly 

(3)  This  is  the  current  account  balance  that  would  prevail  if 
both  the  domestic  and  the  trade  partner  economies  would 
have closed their output gaps. This figure may be the most 
appropriate  to  filter  out  the  impact  of  the  business  cycle 
from the current account balance. 

Denmark’s  external  price  competitiveness 
remains  strong.  Both  the  real  effective  exchange 
rate  (REER)  and  the  unit  labour  cost  (ULC) 
indicators  have  been  developing  broadly  in  line 
with  those  for  the  main  trading  partners  over  the 
past few years. Domestic prices grew more slowly 

8 

-6-4-2024681012199920002001200220032004200520062007200820092010201120122013201420152016*Secondary income balancePrimary income balance  Trade balance - services  Trade balance - goodsCurrent account balance (CA)% of GDP-8-6-4-202468101220012002200320042005200620072008200920102011201220132014201520162017*2018*Households and NPISHGeneral governmentCorporationsTotal economy% of GDP 
 
                                                           
 
1. Economic situation and outlook 

than in the country’s main trading partners (Graph 
1.10).  

Graph 1.10:  Breakdown of the real effective exchange rate 

for Denmark 

for  housing.  House  prices  have  been  growing 
throughout  the  country,  mainly  in  line  with  their 
fundamentals, and a wide range of policy measures 
in  the  aftermath  of  the  crisis  has  so  far  been 
successful in containing upward pressure on house 
prices  (see  also  Section  3.2).  However,  house 
prices  have  been  surging  in  the  main  urban  areas 
and house prices are already above their pre-crisis 
levels in Copenhagen, where the increase has been 
driven by supply side inefficiencies as well.   

have 

households 

Danish 
continued 
deleveraging.  Households  in  Denmark  have  been 
in  a  state  of  passive  deleveraging  following  the 
bursting  of  the  housing  bubble  in  2007.  The 
overall  loan  growth  rate  has  shown  a  moderate 
rise,  while  mortgage  lending  as  a  share  of  GDP 
and  disposable 
falling. 
Households’ debt-to-GDP ratio has fallen from its 
peak of 143 % in 2009 to 120.7 % in 2016. 

income  has  been 

Productivity challenges  

productivity 

development 

Danish  productivity  developments  have  been 
more  positive  than  previously  thought.  On  15 
November  2016,  Statistics  Denmark  published  a 
significant  revision  of  historical  national  accounts 
numbers.  The  revision  was  particularly  large  for 
the  years  2013-2015.  The  recovery  of  the  Danish 
economy following the crisis now appears stronger 
and 
been 
has 
significantly  more  positive 
than  previously 
anticipated.  However,  productivity  growth  has 
flattened out over the last 15 years, at around 1 % 
per year. Slow productivity growth in the services 
sector, which has increased its share in gross value 
added,  is  one  important  factor  behind  the  slow 
in  Denmark.  Lack  of 
productivity  growth 
competition in the domestic services sector, which 
is  less  exposed  to  foreign  competition,  has  been 
identified  as  an  important  contributing  factor  in 
this regard. In particular, the construction, taxi and 
retail  sectors  have  been  identified  as  having 
significant barriers to competition (see also Section 
3.4.3). 

(1) NEER: Nominal Effective Exchange Rate;  
REER: Real Effective Exchange Rate 
Source: European Commission 

Monetary policy 

The fixed exchange rate policy is a cornerstone 
of Danish economic policy. Denmark has pursued 
a fixed exchange rate regime since 1982, first vis-
à-vis  the  Deutsche  Mark  and  since  1999  vis-à-vis 
the  euro.  The  fixed  exchange  rate  policy  has 
proven  successful  even  in  periods  of  turbulence 
and enjoys broad political backing. 

Financial  sector,  housing  market  and  private 
indebtedness  

Indicators  suggest  that  the  Danish  banking 
sector  is  stable.  Banks  are  well  capitalised  and 
bank profitability has improved. Although the non-
performing  loans  ratio  is  low  and  declining,  the 
quality of bank assets in Denmark is outperformed 
by its Nordic peers, as some Danish banks are still 
suffering from legacies of the economic crisis. 

House price growth has continued. House prices 
have continued to rise in 2016, but at a somewhat 
slower  pace  than  in  2015.  House  prices  are 
supported  by  low  interest  rates  and  growing 
incomes,  while  in  the  large  cities  —  where  price 
growth  has  been  higher  than  the  national  average 
—– high population growth has increased demand 

9 

-8-6-4-20246820002001200220032004200520062007200820092010201120122013201420152016*2017*NEER IC-42relative HICP (-)REER (HICP) IC-42REER (ULC) IC-37y-o-y % change 
 
1. Economic situation and outlook 

Graph 1.11:  Average annual productivity growth 

Source: Statistics Denmark 

Main macroeconomic risks  

Risks  to  the  macroeconomic  outlook  appear 
broadly  balanced.  Downside  risks  relate 
to 
uncertainty  as  regards  the  external  environment. 
Conversely,  there  are  upside  risks  to  domestic 
demand if households and companies reduce their 
currently  high  rates  of  saving  and  increase  their 
consumption and investments. 

Rising  house  prices  could  make  the  economy 
vulnerable to shocks. A possible overvaluation of 
house prices in certain regions could entail risks of 
a disorderly and harmful correction in the medium 
term, with a potential impact on the banking sector 
and  the  real  economy.  Housing  shortage  in  the 
main urban areas can hamper labour mobility. 

The high level of household indebtedness makes 
the economy more sensitive to shocks. Although 
households’  high  gross  debt  is  matched  by  even 
higher  assets,  most  of  those  assets  are  relatively 
illiquid,  such  as  housing  and  pension  savings.  
Assets  are  also  prone  to  valuation  effects,  and 
drops in house prices can affect their debt service 
ability  with  broader  economic  consequences 
depending  on  distributional  aspects  and  size  of 
wealth  effects.  Nevertheless,  studies  from  the 
central  bank  and  from  Danish  authorities  indicate 
that Danish households are resistant to the type of 
tail  risk  events  as  described  above,  due  to  a 
concentration  of  debt  within 
the  group  of 
households  with  the  highest  income.  The  Danish 

authorities  have  also  taken  a  number  of  measures 
to  make  the  mortgage  system  more  robust  and  to 
strengthen the stability, supervision and regulation 
of the financial system (see also Section 3.2). 

Public finances 

the  underlying 
Revenue  volatility  masks 
improvement  in  public  finances.  The  general 
government balance is expected to improve from a 
deficit  of  1.3 %  of  GDP  in  2015  to  a  deficit  of 
0.9 % of GDP in 2018. The profile of the headline 
balance  is,  however,  partly  affected  by  volatile 
revenue  items.  According  to  the  Commission 
winter 2017 forecast, the fiscal balance is expected 
to deteriorate to a deficit of 1.6 % of GDP in 2016-
17,  before  improving  to  0.9 %  of  GDP  in  2018. 
The  deterioration  from  2015  to  2016  should  be 
seen  in  light  of  extraordinary  revenues  from  the 
restructuring  of  capital  pensions  in  2013-2015. 
Another  important  factor  is  the  volatility  of 
revenues from the pension yield tax. The revenues 
from  this  tax  are  expected  to  decrease  by  around 
0.8 % of GDP from 2016 to 2017.  

The  structural  balance  is  affected  by  the  same 
volatility.  The  structural  balance  is  expected  to 
improve  from  a  deficit  of  around  2 %  of  GDP  in 
2015 to a deficit of around ½ % of GDP in 2016, 
and  2017.  In  2018,  the  structural  balance  is 
expected  to  reach  balance.  The  profile  of  the 
structural balance is also affected by the volatility 
of pension yield tax revenues and of other volatile 
revenue items such as revenues from North Sea oil 
and gas extraction. While Danish authorities filter 
this  volatility  out  of  their  estimates  for  the 
structural  balance,  this  is  not  allowed  under  the 
commonly  agreed  methodology  applied  by  the 
Commission. 

Public debt is low and remains on a downward 
path.  The  general  government  gross  debt  level  is 
expected to gradually decline from 39.6 % of GDP 
in  2015  to  36.9 %  of  GDP  in  2018.  This  is  well 
below  the  threshold  of  the  Stability  and  Growth 
Pact  (60 %  of  GDP),  and  significantly  lower  than 
the  EU  average  of  85 %  of  GDP  in  2015.  Risks 
related to Denmark’s fiscal sustainability appear to 
be  low  in  the  medium  and  long  term  due  to  low 
and gradually falling public debt and falling public 
spending  forecasts  related  to  pensions  (see  also 
Section 3.1). 

10 

-1,0-0,50,00,51,01,52,02,53,03,51991-19951996-2000200120-052006-20102011-2015Mining and utilitiesConstructionManufacturingServicesNon-agri business sectoraverage annual growth pps. 
 
1. Economic situation and outlook 

Table 1.1: 

Key economic, financial and social indicators 

(1) Sum of portfolio debt instruments, other investment and reserve assets 
(2,3) domestic banking groups and stand-alone banks. 
(4) domestic banking groups and stand-alone banks, foreign (EU and non-EU) controlled subsidiaries and foreign (EU and 
non-EU) controlled branches. 
(*) Indicates BPM5 and/or ESA95 

Source: European Commission,  European Central Bank 

11 

2004-20082009201020112012201320142015201620172018Real GDP (y-o-y)1.9-4.91.91.30.20.91.71.61.01.51.8Private consumption (y-o-y)2.7-3.40.80.30.50.30.51.91.81.72.0Public consumption (y-o-y)1.93.01.6-0.60.8-0.11.20.61.30.70.8Gross fixed capital formation (y-o-y)4.3-13.0-5.70.43.72.73.52.53.73.03.6Exports of goods and services (y-o-y)5.7-9.22.97.21.21.63.61.80.22.73.3Imports of goods and services (y-o-y) 8.6-11.90.57.42.71.53.61.31.33.43.9Output gap3.3-3.6-2.6-2.1-2.7-2.6-1.8-1.3-1.6-1.6-1.4Potential growth (y-o-y)1.40.90.90.80.80.80.91.11.21.51.6Contribution to GDP growth:Domestic demand (y-o-y)2.7-3.8-0.30.01.10.61.21.51.91.61.9Inventories (y-o-y)0.1-2.11.00.9-0.20.10.2-0.3-0.40.00.0Net exports (y-o-y)-0.91.11.20.4-0.70.20.30.4-0.5-0.2-0.1Contribution to potential GDP growth:Total Labour (hours) (y-o-y)0.1-0.2-0.2-0.3-0.3-0.20.00.40.50.60.6Capital accumulation (y-o-y)0.70.30.10.10.20.20.30.40.40.50.6Total factor productivity (y-o-y)0.60.81.11.01.00.70.50.40.30.40.5Current account balance (% of GDP), balance of payments3.03.56.66.66.37.88.99.2...Trade balance (% of GDP), balance of payments4.04.56.96.46.06.67.07.4...Terms of trade of goods and services (y-o-y)0.70.32.4-1.90.51.00.80.2-0.30.10.3Capital account balance (% of GDP)0.00.00.00.30.00.0-0.2-0.4...Net international investment position (% of GDP)-1.80.912.827.836.137.244.134.0...Net marketable external debt (% of GDP) (1)-29.7-32.4-27.8-23.4-16.7-14.5-4.3-4.0...Gross marketable external debt (% of GDP) (1)142.4165.4169.9162.2159.1156.0150.5141.8...Export performance vs. advanced countries (% change over 5 years)6.7*3.6*-3.3-5.9-7.9-9.9-9.4-6.82...Export market share, goods and services (y-o-y)0.3-1.6-9.8-4.2-4.82.20.1-2.3...Net FDI flows (% of GDP)2.50.93.5-0.11.61.81.01.8...Savings rate of households (net saving as percentage of net disposable income)-2.90.71.80.80.12.3-1.84.4...Private credit flow, consolidated (% of GDP)17.7-1.8-3.04.57.9-2.70.2-1.2...Private sector debt, consolidated (% of GDP)198.3232.2220.7221.0224.0216.3215.6210.1...of which household debt, consolidated (% of GDP)119.1141.6137.6137.8135.7132.8131.4128.3...of which non-financial corporate debt, consolidated (% of GDP)78.289.782.382.687.783.083.881.4...Corporations, net lending (+) or net borrowing (-) (% of GDP)3.86.67.98.78.48.48.47.46.25.14.4Corporations, gross operating surplus (% of GDP)22.620.022.222.222.922.722.421.920.821.021.0Households, net lending (+) or net borrowing (-) (% of GDP)-4.8-0.50.6-0.60.9-0.2-2.11.31.43.33.3Deflated house price index (y-o-y)7.6-13.10.3-4.0-4.93.13.06.3...Residential investment (% of GDP)6.04.23.74.34.13.73.94.0...GDP deflator (y-o-y)2.70.53.20.62.40.90.80.90.01.41.8Harmonised index of consumer prices (HICP, y-o-y)2.01.02.22.72.40.50.40.20.01.41.6Nominal compensation per employee (y-o-y)3.52.83.21.41.81.61.51.51.92.22.7Labour productivity (real, person employed, y-o-y)0.5-1.84.31.41.01.00.70.3...Unit labour costs (ULC, whole economy, y-o-y)3.04.7-1.00.00.90.60.81.12.41.81.7Real unit labour costs (y-o-y)0.34.1-4.1-0.6-1.5-0.30.10.22.40.4-0.1Real effective exchange rate (ULC, y-o-y)1.92.9-4.5-1.8-3.91.91.0-2.52.50.6-0.1Real effective exchange rate (HICP, y-o-y)0.22.6-4.4-0.7-2.91.00.8-3.21.1-1.4.Tax rate for a single person earning the average wage (%)41.039.538.338.438.635.835.635.9...Tax rate for a single person earning 50% of the average wage (%)37.5*36.635.335.435.731.030.831.1...Total Financial sector liabilities, non-consolidated (y-o-y)10.26.710.4-0.30.92.39.10.5...Tier 1 ratio (%) (2).14.415.115.517.317.716.418.0...Return on equity (%) (3).-3.71.8-0.11.83.83.66.5...Gross non-performing debt (% of total debt instruments and total loans and advances) (4).2.83.13.03.93.95.14.0...Unemployment rate4.36.07.57.67.57.06.66.26.25.95.7Long-term unemployment rate (% of active population)0.80.61.51.82.11.81.71.7...Youth unemployment rate (% of active population in the same age group)8.011.813.914.214.113.012.610.812.0..Activity rate (15-64 year-olds)80.380.279.479.378.678.178.178.5...People at risk of poverty or social exclusion (% total population)16.717.618.317.617.518.317.917.7...Persons living in households with very low work intensity (% of total population aged below 60)9.58.810.610.510.211.912.211.6...General government balance (% of GDP)4.0-2.8-2.7-2.1-3.5-1.01.4-1.3-1.6-1.6-0.9Tax-to-GDP ratio (%)47.846.346.346.346.947.550.347.647.046.145.9Structural budget balance (% of GDP)..-1.1-0.7-0.3-0.9-0.6-1.9-0.6-0.60.0General government gross debt (% of GDP)34.840.242.646.144.944.044.039.638.337.836.9forecast 
 
 
 
 
 
 
 
2.  PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS 

the 

the 

introduction  of 

implementation  of 

Progress  with 
the 
recommendations  addressed  to  Denmark  in 
2016(4)  has  to  be  seen  in  a  longer  term 
the 
perspective  since 
European  Semester  in  2011.  As  regards  CSR 1, 
Denmark delivered a timely and durable correction 
of  its  excessive  deficit  between  2010  and  2013. 
The  general  government  deficit,  which  according 
to  the  notification  from  the  Danish  authorities  in 
April 2010 was planned at 5.4 % of GDP in 2010, 
never  actually  exceeded  the  3 %  of  GDP  Treaty 
reference  value  in  the  years  in  the  Excessive 
Deficit  Procedure,  with  the  exception  of  2012, 
when the headline balance was affected negatively 
by  a one-off measure related  to  a pension reform. 
In the period, the headline balance improved from 
-2.7 % of GDP in 2010 to -1.1 % of GDP in 2013 
and  the  deficit  has  been  below  3 %  of GDP  since 
then. The fiscal framework was strengthened with 
the transposition of the requirements of the Fiscal 
Compact  into  national  law,  as  well  as  with  the 
legally  binding  multi-annual 
introduction  of 
expenditure  ceilings  on  all 
levels  of 
three 
governance, which took effect in 2014. 

Increasing  productivity 
growth,  business 
investment and competition in the domestically- 
oriented services sector have been prominent on 
the  Danish  government‘s  agenda.  Several 
continuous,  but  limited,  steps  have  been  taken  in 
the  right  direction  since  2011.  A  ‘Productivity 
Commission’  was  established  in  2012  to  propose 
recommendations  that  could  enhance  productivity 
in the Danish private and public sectors. Several of 
the recommendations published in 2014 have been 
implemented  since  then.  Such  measures  include 
the  further  opening  up  of  municipal  and  regional 
procurement  of  services 
to  competition,  or 
simplifications  of  the  Public  Procurement  Act. 
However, the recommendations of the Productivity 
Commission  on  the  regulation  of  businesses  such 
as taxis, or the provision of train services, have so 
far not been followed up. As regards construction, 
there  are  ongoing  modifications  in  the  Building 
Regulation with the objective to ease and simplify 
the  building  permit  procedure  for  construction,  or 
ongoing analysis of the construction sector with a 
view to adapting Danish regulation to international 
increased  foreign 
standards, 

thereby  enabling 

(4)  For  the  assessment  of  other  reforms  implemented  in  the 

past, see in particular section 3. 

competition in the sector. Proposed changes in the 
Danish Planning Act aim to ease the restrictions on 
retail  establishments  by  allowing  the  construction 
of  larger  shops  and  granting  local  municipalities 
more  flexibility  in  the  planning  process  for  the 
retail sector. 

Long-term labour supply and the improvement 
of  the  employability  of  those  at  the  margins  of 
the  labour  market  was  a  topic  in  the  CSRs  to 
Denmark in 2011-2014. Denmark implemented a 
number  of  labour  market,  pension  and  social 
reforms in this period. Measures were also taken to 
improve the quality of the education system and to 
reduce 
the  drop-out  rates  within  vocational 
education.  Denmark  made  sufficient  progress  for 
the recommendations in these areas to be dropped 
in 2015. 

The  2011-2012  recommendation  to  strengthen 
the  stability  of  the  housing  market  and  the 
financial  market  in  the  medium  term  was 
dropped following a number of initiatives from 
the Danish authorities. These initiatives included 
more  restrictive  use  of  variable  rate  loans  and 
loans  with  deferred  amortisation,  a  scheme  for 
improved  loan  risk  signalling,  and  intensified 
monitoring  of  system  risks.  Detailed  studies  from 
the  National  Bank  and  the  Ministry  of  Business 
and  Growth  of  the  structure  of  household  debt, 
based  on  actual  microdata,  pointed  to  relatively 
high  resilience  among  Danish  households  in  the 
event of interest rate increases. 

the 

regards  CSR 2, 

Overall, Denmark has made some progress(5) in 
country-specific 
addressing 
2016 
the 
recommendations.  As 
government  tabled  reforms  for  the  retail  sectors 
which, however, have not yet been adopted, hence 
limited  progress  in  this  area.  The  mapping  of 
standards in 2015, the modernisation of the law on 
electrical  installations  in  2015,  and  the  proposed 
amendments to the Building Regulation in order to 
simplify procedures have resulted in some progress 
towards increasing competition in the construction 
sector.  Policy  initiatives  to  encourage  cooperation 
between  businesses  and  universities  by  specific 

(5)  Information  on  the  level  of  progress  and  actions  taken  to 
address  the  policy  advice  in  each  respective  subpart  of  a 
CSR is presented in the Overview Table in the Annex. This 
overall  assessment  does  not  include  an  assessment  of 
compliance with the Stability and Growth Pact. 

12 

 
                                                           
                                                           
2. Progress with country-specific recommendations 

Table 2.1: 

Summary table of the 2016 CSR assessment 

Source: European Commission 

programmes  and 
Innovation Fund also constitute some progress. 

the  setting  up  of  a  new 

13 

DenmarkOverall assessment of progress with 2016 CSRs:  SomeSome progressSomeprogressinincreasingcompetitionintheconstructionsectorand limited progress on increasing competition in the retail sector.Someprogressinincentivisingthecooperationbetweenbusinessesand universities.CSR1:Respectthemedium-termbudgetaryobjectivein2016andachieveanannualfiscaladjustmentof0.25%ofGDPtowardsthemedium-term budgetary objective in 2017.CSR2:Enhanceproductivityandprivatesectorinvestmentbyincreasingcompetitioninthedomesticservicessector,inparticularretailandconstructionandtoincentivisethecooperationbetweenbusinesses and universities.CSRs related to compliance with the Stability and Growth Pact will be assessed in spring once the final data is available. 
 
 
 
 
2. Progress with country-specific recommendations 

14 

 Box 2.1: Contribution of the EU budget to structural change in DenmarkThe total allocation of the European Structural and Investment Funds (ESI funds) in Denmark amounts to EUR 1.5 billion for 2014-2020. This is equivalent to around 0.1% of GDP annually (over 2014-2017) and 2% of national public investment1. By 31 December 2016, an estimated EUR 528 million, which represents about 34 % of the total allocation for ESI Funds, have already been allocated to concrete projects.  Financing under the European Fund for Strategic Investments (EFSI), Horizon 2020, the Connecting Europe Facility  and  other  directly  managed  EU-funds  is  additional  to  the  ESI funds. By end 2016, Denmark has signed agreements for EUR 658.7 million for projects under the Connecting Europe Facility. The EIB Group approved financing under EFSI amounts to EUR 329 million, which is expected to trigger nearly EUR 1 billion in total investments (as of end 2016). All necessary reforms and strategies as required by ex-ante conditionalities have been put in place for an efficient up take of the funds2. All relevant CSRs were taken into account when designing the 2014-2020 programmes. ESI Funds investments in Denmark aim to a large extent at promoting SME development. A substantial part of these investments concerns the establishment of clusters and networking constellations with the aim of supporting SMEs in innovation-oriented collaboration with research institutes and/or universities, and of helping them with exchanging knowledge and transfer of technology. In this respect, the ESI Funds respond well to the challenges of the CSR, as it is expected that support for innovation in businesses will result in 2.700 businesses presenting products, which are new to the business or the market.  In addition to the challenges identified in the CSR, the ESI Funds address other structural weaknesses which impede growth and competitiveness. These include investments in energy efficiency measures in businesses which on the one hand will increase the competitiveness of SMEs (increased energy savings equivalent to EUR 22 million are expected during the programming period) and on the other hand will reduce carbon-dioxide emissions of more than 127.000 tonnes CO2-equivalents. ESI Funds also address the challenges identified in previous years in the context of the European Semester, such as social inclusion by targeting the employability of people at the  margins  of the labour market and improvements in vocational training and higher education. Consequently, more than 11 000 persons are expected to receive training to improve or ensure their employability. https://cohesiondata.ec.europa.eu/countries/DK                                                            1  National public investment is defined as gross capital formation + investment grants + national expenditure on agriculture and fisheries 2  At the adoption of programmes, Member States are required to comply with a number of ex-ante conditionalities, which aim at improving framework and investment conditions for the majority of areas of public investments. For Members States that do not fulfil all the ex-ante conditionalities by the end 2016, the Commission has the possibility to propose the temporary suspension of all or part of interim payments  
 
 
 
 
 
3.  REFORM PRIORITIES 

3.1.  PUBLIC FINANCES AND TAXATION 

3.1.1.  TAXATION SYSTEM 

Graph 3.1.1:  Inactivity trap for low income earners in EU 

Member States, 2015 

Recent  developments  in  Denmark's  tax  system 
aimed to make it more favourable to investment 
and  entrepreneurship.  The  2025  plan  presented 
by 
is 
the  previous  government  (and  which 
expected to be continued in some form by the new 
government)  aimed  to  increase  investment  and 
productivity. It plans to reduce taxes for businesses 
through introduction of an allowance for corporate 
equity 
tax 
deductions  for  R&D  expenses  and  cut  taxes  for 
to  encourage 
new  businesses.  It  also  plans 
investors  to  put  their  money  into  promising  small 
enterprises.  In  order  to  reduce  incentives  to  debt 
uptake, 
the 
possibility  of  deducting  interest  on  loans  in  the 
personal income taxation system.  

for  new  equity,  expand 

the  government  plans 

(ACE) 

limit 

to 

are 

valuations 

Recurrent property taxes have been frozen and 
outdated.  The 
property 
government  has  come  forward  with  a  plan  for  a 
new,  more  accurate  way  to  assess  the  value  of 
properties.  This  plan  could  make  property  owners 
pay  taxes  based  on  the  current  market  value  of 
their  houses.  The  government  also  aims  to  reduce 
property taxes: according to its plans, two thirds of 
homeowners  should  pay  less  than  under  current 
rules  and  the  rest  should  not  see  a  bigger  tax  bill 
due to permanent tax discount that the government 
plans to introduce (see also Section 3.2).  

labour 

incomes.  These  changes  aim 
and 

Low-income earners in Denmark are faced with 
a high inactivity trap to which current taxation 
system also contributes (Graph 3.1.1). In order to 
promote  job  creation,  the  government  plans  to 
reduce  personal  income  taxes,  especially  on  low 
to 
and  middle 
increase 
the 
employment  rate.  In  Denmark,  the  risk  of  being 
poor is lower than in most other EU countries, yet 
12.7 % of the population was at risk of poverty in 
2015.  The  government  has  proposed  making 
income earned by homeless people tax-free up to a 
threshold,  and  to  grant  a  special  cash  benefit  for 
people who have been out of the labour market for 
a long time (see also Section 3.3). 

increase 

supply 

Source: European Commission tax and benefits indicator 
database based on OECD data 

The  Danish  Public  Service  Obligation's  (PSO) 
objective  is  to  support  Denmark's  ambitious 
environmental  objectives.  PSO  is  a  tariff  levied 
upon  all  electricity  consumed  in  Denmark  for  the 
support  of  renewable  energy.  As  from  2017, 
Denmark  is  phasing  out  the  PSO  tax  replacing  it 
with  revenues  from  the  general  State  budget.  The 
government based its decision on an evaluation of 
the PSO scheme, which showed that its impact on 
energy  costs  was  too  high  compared  to  its 
effectiveness  in  promoting  the  development  of 
renewables. In addition, the European Commission 
raised  competition  concerns  over  the  PSO  tax 
scheme,  because  electricity  producers  from  other 
EU  Member  States  exporting  electricity 
to 
Denmark  did  not  have  access  to  subsidies  under 
the same conditions as Danish energy companies. 

Environmental tax revenues relative to GDP, at 
4.08 %  in  2014,  are  high  compared  to  the  EU 
to 
average  of  2.46 %.  Compared 
total 
the 
and 
social-security 
revenues 
contributions, 
revenues 
tax 
environmental 
accounted  for  8.18 %  in  2014  (EU  average: 
6.35 %) as shown in Graph 3.1.2. This represents a 
modest decrease compared to 2013 (8.92 %).  

taxes 

from 

15 

0102030405060700102030405060708090DKNLIEFILUSEATBECZSIDEUKMTFRLVPLHUHREEESLTPTBGSKROITELEU-28Inactivity trap 67% AW (%) (lhs)Contribution of taxation to inactivity trap (pps.) (lhs)Employment rate low-skilled (2015) (rhs)%% 
 
3.1. Public finances and taxation 

medium  and  long  term.  There  are  no  short-term 
risks  of  fiscal  stress,  though  some  variables  (such 
as  the  share  of  short-term  public  debt  out  of  total 
debt)  point  to  certain  short-term  challenges.    The 
government's  contingent  liability  risks  from  the 
banking sector, in particular due to high bank loan-
to-deposit  ratio  and  the  relatively  high  share  of 
non-performing  loans  coupled with  low (less  than 
33 %)  coverage  ratios  also  require  constant 
monitoring.  In  the  medium  term,  there  are  no 
apparent  risks  from  a  debt  sustainability  analysis 
perspective  due  to  the  low  stock  and  gradually 
decreasing public debt until the end of projections 
(2027).  Debt  projections  appear  resilient 
to 
potential  shocks  to  nominal  growth,  interest  rates 
and  primary  balance.  No  medium-term  risks 
emerge from the analysis of the sustainability gap 
indicator S1(6) either. This is due to the debt ratio 
being  far  below  the  60 %  Treaty  reference  value, 
decreasing  age-related  public  spending  and  the 
favourable initial budgetary position. Finally, there 
are no sustainability risks for Denmark in the long 
run,  assuming  that  the  Commission’s  structural 
primary  surplus  forecast  for  2018  will  be  kept 
beyond  that  year.  Risks  in  the  long  term  appear 
limited  due  to  the  favourable  initial  budgetary 
position and because increasing public spending on 
healthcare  and  long-term  care  are  expected  to  be 
compensated  almost  fully  by  forecast  falls  in 
public  spending  related  to  pensions  and  other 
factors. 

(6)  The  medium-term  sustainability  indicator  S1measures  the 
fiscal  adjustment  effort  required,  in  cumulated  terms  over 
the  next  5  years  after  the  period  covered  by  the  forecast 
horizon  (i.e.  from  2019)  to  drive  the  public  debt-to-GDP 
ratio down to 60 % in 15 years' time (currently 2031). 

Graph 3.1.2:  Environmental tax revenues percentage of 

total revenues from taxes and social 
contributions (excluding imputed social 
contributions) in 2014 

Source: Eurostat 

3.1.2.  FISCAL FRAMEWORK  

The fiscal framework in Denmark consists of a 
medium-term  budgetary  strategy,  the  Budget 
Law  and  the  rules  following  from  the  Stability 
and  Growth  Pact.  The  medium-term  budgetary 
strategy  applies  to  all  levels  of  government.  The 
central  objective  in  the  strategy  is  to  achieve  a 
structural general government balance or surplus in 
the medium to long term. 

Compliance  with  the  national  fiscal  rules  is 
being  monitored  by  the  Danish  Economic 
Council  (DORS).  As  a  part  of  the  2012  Budget 
Law,  DORS,  an  independent  institution,  was 
designated ‘fiscal watchdog’, and is monitoring the 
long-term  sustainability  of  public  finances,  the 
medium-term  development  of  the  budget  balance 
and whether the expenditure ceilings are complied 
with,  and  whether  these  are  in  line  with  the 
medium-term fiscal objective. 

3.1.3.  FISCAL SUSTAINABILITY 

Risks to Denmark’s fiscal sustainability are low 
in the short, medium and long term. According 
to  the  forthcoming  European  Commission’s  Debt 
Sustainability  Monitor,  risks  related  to  Denmark's 
fiscal  sustainability  appear  to  be  low  in  the  short, 

16 

051015FranceBelgiumSwedenLuxembourgGermany…SpainAustriaSlovakiaLithuaniaCzech RepublicEuropean…FinlandPortugalHungaryUnited KingdomPolandIrelandDenmarkEstoniaItalyMaltaRomaniaNetherlandsCyprusLatviaBulgariaGreeceCroatiaSlovenia 
 
                                                           
3.2.  FINANCIAL SECTOR 

3.2.1.  HOUSING MARKET AND PRIVATE 

INDEBTEDNESS 

Danish  real  house  prices  have  accelerated 
steadily since they reached their lowest level in 
Q2  2012.  The  annual  growth  rate  increased  from 
1.5 %  in  Q1-2013  to  6.3 %  in  Q4-2015,  although 
slowed  slightly  to  4.3 %  in  Q3-2016  (see  Graph 
3.2.1).  House  price  growth  has  been  steeper  in 
certain  geographical  areas  and  housing  segments. 
The rise has been mainly driven by the main urban 
areas:  for  instance,  prices  in  Copenhagen  climbed 
by 47 % compared to the national average of 19 % 
since  2012.  While  average  house  prices 
in 
Denmark  are  still  almost  14 %  below  their  Q1 
2007  peak,  the  prices  in  Copenhagen  are  now 
above  their  pre-crisis  levels.  Prices  of  multi-
dwelling  buildings  (concentrated  in  urban  areas) 
have  increased  by  44 %  since  the  trough  in  2012, 
while prices for single family houses increased by 
17 % in the same period. 

Graph 3.2.1:  Real house price increase (Index 2010=100) 

Source: Eurostat, OECD 

Demand side drivers are supporting house price 
growth.  Strong  urbanisation  trends  put  upward 
pressure  on  property  prices  in  the  main  urban 
areas.  While  the  population  of  Denmark  grew  by 
an  average  of  3 %  between  2008  and  2015,  the 
population  of  Copenhagen  grew  by  17 %,  and 
Copenhagen  is  expected  to  remain  one  of  the 
fastest-growing  capitals  in  the  EU.  Although 
Denmark’s  GDP  grew  by  only  an  estimated  5 % 
between  2012  and  2016  real  disposable  incomes 

grew  by  18 %  during  the  same  period,  on  a  par 
with house prices. Low inflation has further eased 
financing  conditions,  and  mortgage  interest  rates 
fell  to  historically  low  levels  in  2015,  although 
they  have  increased  slightly  since  then.  The 
favourable 
further 
magnified by the availability of interest-only loans. 
The unique Danish mortgage system has been able 
to provide households with a large number of low-
cost mortgage loans, resulting in one of the lowest 
mortgage rates in the EU.  

financing  conditions  are 

Policy  remains  favourable  for  building  up 
housing equity. Although interest deductibility for 
mortgage  loans  is  being  gradually  reduced  from 
33 %  in  2007  to  25 %  by  2019,  it  remains  one  of 
the  highest in the  EU. Denmark  also  belongs  to  a 
group of relatively few EU countries where there is 
no  ceiling  on  the  total  amount  of  the  deduction, 
and there are no special conditions for a mortgage 
loan to qualify for the tax deduction (7).  

taxes  on 

Features  of  the  property  tax  system  can  be 
improved in order to reduce house price swings. 
Housing  taxation  in  Denmark  consists  of  two 
separate  taxes:  property  value  tax  and  land  tax. 
The  majority  of  homeowners  pay 
recurrent 
property 
the  basis  of  2001-2002 
assessments and land tax increase has been capped 
(see  also  Section  3.1).  This  means  that  a  nominal 
ceiling is imposed on the property value tax so that 
a rise in the value of property will not increase tax 
payments  for  many  home  owners.  As  a  result, 
since  2001,  the  effective  tax  rate  for  housing  at 
national  level  has  dropped  from  1 %  in  1998  to 
below 0.55 % in 2015 with large variations across 
municipalities (Klein  et  al.,  2016).  The  current 
property tax system thus favour areas that have had 
the  highest  house  price  growth  (such  as  the  main 
urban areas) and can lead to greater fluctuations of 
house  prices.  The  current  system  also  limits  the 
budgetary  revenues  from  increased  house  prices. 
In  January  2017  the  government  presented  a 
proposal  to  adjust  the  Danish  housing  taxation 
system. 

Supply-side 
inefficiencies  are  particularly 
persistent  in  the  main  urban  areas.  Rapidly 
rising  land  prices  and  long  and  complex  planning 
supply-side 
processes 

significant 

remain 

(7)  In  the  Netherlands,  for  instance,  only  amortised  loans  are 

eligible for a tax deduction. 

17 

20,040,060,080,0100,0120,0140,0DenmarkSwedenOECDIndex (2010=100) 
 
                                                           
3.2. Financial sector 

their gross debt. This has resulted in balance-sheet 
expansion  with  a  high 
level  of  assets  and 
liabilities. A significant portion of household debt 
is  related  to  housing  wealth,  and  gross  debt  is 
compensated by pension wealth. Households’ debt 
to  financial  assets  ratio  has  fallen  from  a  peak  of 
61.7 % in 2008 to 40 % in 2016. 

Graph 3.2.2:  Leverage, Households - Denmark (2015) 

constraints  on  housing  in  Denmark.  The  supply 
side may also be held back in the near future by a 
lack of skilled labour (Dansk Byggeri 2015). 

The rental market remains subject to one of the 
highest  degrees  of  rent  control  among  EU 
countries. Despite reforms (8) in this area, around 
80 %  of  the  private  rental  housing  market  stock 
still remain under rent control. As a result of high 
rent  control  (Cuerpo  et  al.,  2014),  rental  prices 
have fallen below market prices in certain regions, 
in  particular  in  the  Copenhagen  area.  Significant 
deviation  between  market  prices  and  rental  prices 
can  limit  the  supply  of  rental  apartments  and  fuel 
demand  for  owner-occupied  houses  which  puts 
further upward pressure on house prices. Reduced 
rental  market  opportunities  can  make  it  difficult 
for low-income households to access cheap entry-
level  housing,  thereby  negatively  affecting  labour 
mobility. 

Despite  accelerating  house  price  growth,  credit 
developments  remained  subdued.  The  average 
annual  growth  rate  of  lending  to  households  has 
been gradually falling since 2007 growing at a rate 
in  2016.  As  a  result,  Danish 
of  only  1 % 
households  have  been 
in  a  gradual  passive 
deleveraging  phase  since  2007,  in  which  benign 
supply  conditions  are 
credit  demand  and 
facilitating  smooth  and  gradual  adjustment  of 
household  debt  driven  by  nominal  growth  of  the 
economy.  Household  debt  as  a  share  of  GDP  and 
decreasing 
has 
disposable 
continuously:  the  level  of  household  debt  to 
disposable  income  has  declined  from  its  peak  of 
297 %  in  2009  to  240.1 %  in  2016  (one  of  the 
highest  rates  of  deleveraging  among  the  EU), 
while the level of household debt to GDP fell from 
its peak of 142.5 % of GDP in 2009 to 120.7 % in 
2016. 
significantly 
accelerated between 2014 and 2016, when debt to 
disposable  income  decreased  by  36  pps.  and  debt 
to GDP by 11.1 pps. (see Graph 3.2.2).  

Deleveraging 

income 

trends 

been 

Large  household  debt  is  underpinned  by  a 
strong  financial  position  of  households,  with 
assets  exceeding  gross  debt.  Due  to  policy 
incentives,  Danish  households  save  in  pension 
schemes  and  housing  equity  rather  than  reducing 

Source: Eurostat 

High  pension  savings  mean 
that  Danish 
households  are  in  a  position  to  service  their 
debt  even  after  retirement.  Nevertheless,  these 
funds  are  accessible  only  upon  retirement,  and 
mostly  through  monthly  instalments.  The  bulk  of 
pension  fund  assets  is  held  in  equities  and  bonds, 
and  is  therefore  subject  to  fluctuations  in  value. 
This means that Danish households’ balance sheet 
can  be  vulnerable  to  shocks  which  could  affect 
their debt servicing ability.  

ratio  has  been 

In  the  short  term,  house  prices  in  Denmark 
appear  to  be  in  line  with  their  underlying 
the  affordability 
fundamentals.  Nevertheless, 
(price-to-income) 
increasing 
steadily since 2011 although it is still 25 % below 
its  peak  during  the  housing  cycle.  European 
Commission calculations do not suggest a potential 
overvaluation  on  a  national  scale,  as  house  prices 
appear  to  be  around  their  fair  value  (see  Graph 
3.2.3)  (9).  Nevertheless,  such  aggregate  figures 

(8)  In  Denmark,  rent  control  was  abolished  in  1991  for  new 
buildings,  and  so  only  buildings  built  before  1991  remain 
subject to rent control. 

(9)  The  aggregate  valuation  gap  is  an  average  of  three 
measures:  (1) 
the  affordability  gap  (price-to-income 
deviation  with  respect  to  its  long-term  average);  (2)  the 
yield  gap  (price-to-rent  deviation  from  its  long-term 

18 

050100150200250300350020406080100120140160200020022004200620082010201220142016*Debt / GDP, HouseholdsDebt / fin. assets, HouseholdsDebt / gross disposable income, Households (right axis)% of GDI% ofGDP and assets 
                                                           
 
                                                           
3.2. Financial sector 

could  mask  regional  differences  and  some  recent 
analyses argue for a potential overvaluation in the 
Copenhagen area (Klein et. al., 2016). 

market,  non-amortising 
proportion of variable interest rate mortgages (10). 

loans,  and  a  high 

Graph 3.2.3:  Overvaluation gap with respect to 

price/income, price/rent and fundamental 
model valuation gaps 

(1) Overvaluation gap estimated as an average of the 
price/income, price/rent and fundamental model valuation 
gaps. Long-term values are computed over 1995-2015. 
Source: Commission services calculations. 

the  financial  crisis, 

Despite  positive  developments  over  the  last 
years,  the  high  level  of  household  debt  could 
pose  a  potential  challenge to  financial  stability. 
If  households  are  affected  by  shocks  to  their 
income, their mortgage interests expenditure or the 
value  of  their  housing,  their  consumption  will 
likely  fall.  This  was  experienced  by  several  EU 
countries  after 
including 
Denmark,  and  together  with  the  fall  in  housing 
investments  contributed  to  a  prolonged  economic 
slump.  If  such  risks  were  to  materialise,  there 
could  be  potential  spill-over  effects  to  other 
countries  in  the  Nordic-Baltic  region.  As  a  result, 
the  European  Systemic  Risk  Board  —  which  in 
2016  conducted  an  EU-wide  forward-looking 
assessment of vulnerabilities relating to residential 
real  estate  —  issued  warnings  to  Denmark  on 
vulnerabilities  in  the  residential  real  estate  sector 
resulting  from  a  combination  of  a  procyclical 
housing  tax  system,  a  highly  regulated  rental 

average);  and  (3)  an  estimate  of  the  deviation  from 
equilibrium  values  from  a  fundamental  error-correction 
model. 

indebtedness  and 

Denmark  has  introduced  a  wide  set  of  policy 
measures to reduce risks stemming from rising 
house  prices  and 
to 
strengthen the resilience of the financial sector. 
The deductibility of interest on mortgages is being 
gradually  reduced.  The  macroprudential  measures 
for  commercial  banks  known  as  the  ‘Supervisory 
Diamond’(11)  are  being  gradually implemented. A 
5 %  compulsory  downpayment  for  new  loan 
applications  was  introduced  in  November  2015. 
New 
rating 
recommendations  on  the  mortgaging  of  homes  in 
growth  areas  (currently  Copenhagen  and  Aarhus) 
have  been  introduced  from  2016.  The  ‘seven  best 
practices’ 
tests, 
interest 
amortisation  requirements  for  negative  net  wealth 
customers,  and  net  wealth  requirements  for 
customers  with  high  loan-to-income  ratios  (see 
also Section 3.2.2). 

rate  stress 

guidelines 

include 

credit 

with 

Risks  related  to  high  household  debt  are  also 
gradually  being  reduced  by  changes  in  the 
composition  of  the  loan  portfolio.  The  pace  of 
mortgage loan amortisation by Danish households 
has  increased  in  recent  years,  although  it  still 
remains  relatively  low  and  the  proportion  of 
variable  interest  rate  mortgage  loans  from  new 
loans 
could 
nevertheless  also  reverse  if  interest  rates  start  to 
increase  and  households  opt  for  lower  monthly 
payments by extending the amortisation period.  

declined.  These 

trends 

has 

3.2.2.  FINANCIAL SECTOR STABILITY  

Financial  soundness  indicators  suggest  that the 
banking  sector 
is  stable.  Banks  are  well 
capitalised: the average Tier 1 ratio was at 17.8 % 
in mid-2016 (Table 1.1). The quality of bank assets 
in Denmark is outperformed by its Nordic peers, as 
some Danish banks are still suffering from legacies 
of  the  economic  crisis  in  2009,  especially  smaller 
banks  in  rural  areas.  Yet,  the  average  ratio  of 
non-performing  loans  decreased  from  5.1 %  in 

(10)  The  Board’s  warnings  to  Denmark  and  seven  other 
Member States were published on 28 November 2016. 
(11)  A  supervisory  tool  that  monitors  banks’  performance 
against  five  benchmarks:  large  exposures, lending growth, 
exposure  towards  commercial  property,  funding  ratio  and 
liquidity. 

19 

-40-30-20-100102030405019951997199920012003200520072009201120132015Model-based valuations gapPrice to income vs. hist. avg.Price to rent vs. hist. avg. 
 
                                                                                   
                                                           
3.2. Financial sector 

2014  to  3.6 %  in  June  2016.  Bank  profitability 
further  improved  and  in  2015  both  the  return  on 
equity  (6.8 %)  and  the  return  on  assets  (0.4 %) 
were  above  the  EU  average  (4.3 %  and  0.3 %, 
respectively).  The  sector  profitability  ratio  is 
lowered by the mortgage credit institutions, whose 
standard business  model is to charge low margins 
on mortgage loans. 

data).  Another  specific  risk  is  related  to  the 
substantial  share  of  Swedish  financial  groups  in 
the Danish market (for more details, see European 
Commission's  Country  Report  on  Sweden,  2016). 
Financial stress in Sweden, for instance caused by 
a  sharp  correction  in  housing  prices  there,  could 
have  a  spill  over  effect  on  market  confidence  in 
Denmark. 

securities,  primarily 

The  bond  market  is  very  well  developed.  The 
overall  size  of  the  debt  securities  market  in 
Denmark increased from EUR 492 billion in 2008 
to  EUR 644 billion  in  2015  (242 %  of  GDP). 
Bank-issued  debt 
the 
mortgage bonds, accounted for EUR 503 billion or 
189 %  of  GDP,  constituting  the  largest  segment. 
The  government  is  the  second  biggest  issuer  with 
the  value  of  outstanding 
sovereign  bonds 
amounting to EUR 109 billion (equivalent to 41 % 
of  GDP).  Market  debt  funding  of  non-financial 
levels 
corporations  remains  at  relatively 
(Graph  3.2.5),  but  it  has  been  increasing  and 
reached  EUR 28 billion,  i.e.  10.5 %  of  GDP  in 
2015, from less than 6 % in 2008. 

low 

The  financial  sector's 
loan-to-deposit  ratio 
(LTD)  continues  to  decline  gradually.  Lending 
to  companies  expanded  faster  than  lending  for 
house  purchases  (Graph  3.2.4).  By  October  2016, 
the  growth  rate  of  banks'  corporate  exposures 
increased  to  3 %  year-on-year  (y-o-y),  whereas 
growth in lending for house purchase was stable at 
1.1 %  y-o-y.  On  the  banking  sector’s  liabilities 
side,  deposits  grew  at  4.3 %,  contributing  to  the 
sluggish reduction of the LTD ongoing since 2012 
(see Table C.1), though the Danish LTD of 270 % 
was  still  the  highest  in  the  EU.  This  is  explained 
by the dominant role of market-based financing, in 
particular through mortgage bonds. Funding by the 
own-issued  debt  securities  accounted  for  43 %  of 
the  Danish  banking  sector  liabilities  compared  to 
28 % share of all deposits.  

There  are  certain  risks  related  to  the  Danish 
banking  sector.  The  large  portfolio  of  deferred 
amortisation  loans  with  the  interest-only  period 
expiring  in  2019-2020  may  lead  to  a  peak  of 
problems  with  debt  repayment,  especially 
if 
combined  with  interest  rate  hikes.  However,  the 
general  share  of  deferred  amortisation  loans  at 
Danish banks was decreasing in recent years, from 
55 % of all household mortgages in 2013 to 50 % 
in  2016  (Association  of  Danish  Mortgage  Banks 

Graph 3.2.4:  Lending trends 

(1) In calculation of the LTD ratio claims on monetary 
financial institutions, government and non-residents were 
excluded. NFC denotes non-financial corporations. 
Source: European Central Bank 

in 

the 

the  market,  will  be 

its  Nordic  subsidiaries 

four  countries.  From  now  on, 

At  the  beginning  of  2017,  Nordea  Bank 
converted  all 
into 
branches. They are systemically important in each 
of 
the 
supervision of Nordea Bank Denmark, the second 
largest  bank 
the 
responsibility of the Swedish financial supervisory 
authority.  Based  on  the  standard  rules  governing 
host  supervision,  the  change  would  seriously 
constrain  the  Danish  authorities'  insight  into  the 
business of the bank as well as their ability to carry 
out  macroprudential  policy.  To  deal  with  the  new 
situation,  the  Nordic  authorities  have  agreed  on 
arrangements  concerning 
information  sharing, 
supervisory responsibility and cooperation, macro-
prudential  policy,  depositor  protection  and 
recovery and resolution planning. 

Few  macroprudential  measures  in  Denmark 
have  a  legally  binding  nature.  In  2016,  the 

20 

-5,0-4,0-3,0-2,0-1,00,01,02,03,04,0Dec-2011Mar-2012Jun-2012Sep-2012Dec-2012Mar-2013Jun-2013Sep-2013Dec-2013Mar-2014Jun-2014Sep-2014Dec-2014Mar-2015Jun-2015Sep-2015Dec-2015Mar-2016Jun-2016Sep-2016Loans to NFCLending for house purchasey-o-y % change 
 
3.2. Financial sector 

Access  to  finance  for  SMEs  remains  relatively 
favourable  in  Denmark.  Nevertheless,  according 
to  the  European  Commission’s  SME  Performance 
Review, the country ranks only eighth in terms of 
access to finance, a significant drop from the third 
place  it  held  in  2015.  The  latest  macroeconomic 
developments,  however,  do  not  point 
to  a 
deterioration  in  the  Danish  business  climate,  and 
Danish SMEs have been growing (constantly albeit 
not dynamically) since 2010. 

Graph 3.2.5:  Funding of non-financial corporations 

Source: European Central Bank, AMECO 

Access  to  finance  remains  challenging  for 
microenterprises  and  the  self-employed.  The 
relative  cost  of  taking  up  small  loans  (up  to 
EUR 1 million) compared to the cost of large loans 
is  higher  in  Denmark  than  most  other  Member 
States.  Denmark  offers  better  access  to  equity 
financing  than  most  other  Member  States.  Still, 
small  businesses  report  difficulties  in  obtaining 
this  type  of  finance.  The  insolvency  framework 
works  well,  but  it  is  not  easy  to  start  a  business 
following  a  bankruptcy:  it  may  take  several  years 
to get a discharge after going bankrupt. The latest 
results  for  Denmark  in  the  European  Commission 
Survey  on  the  Access  to  Finance  of  Enterprises 
(SAFE  survey)  point  to  the  increasing  scarcity  of 
debt  financing.  In  practice,  mortgage  collateral  is 
usually  required  from  small  and  medium-sized 
companies  in  order  to  receive  a  bank  loan.  Many 
start-ups do not have real estate to mortgage. 

institutions, 

systemically 

(12) 
Danish  Financial  Supervisory  Authority 
confirmed  the  previously-identified  six  largest 
banks  in  Denmark  as  systemically  important 
institutions  (O-SII),  given  the  structural  systemic 
risks posed to the financial sector. For each of the 
six 
the 
important 
Ministry  of  Industry,  Business  and  Financial 
Affairs has set a systemic risk buffer, according to 
importance  of  each 
the 
institution(13).  The  buffer 
is  being  gradually 
phased  in  during  the  2015-2019  period.  The 
countercyclical  capital  buffer  was  introduced  on 
1 January 2016  and  calibrated  at  0 %.  It  has  been 
maintained at this level at each quarterly re-setting, 
given the subdued credit growth in the country, as 
measured by the credit-to-GDP gap.  

level  of  systemic 

out 

carried 

(DFSA) 

In  2016,  the  Danish  Financial  Supervision 
Authority 
on-site 
inspections  of  the  five  largest  banks  active  in 
housing  lending  in  Copenhagen.  It  examined 
compliance  with  the  new  guidelines  for  credit 
rating of mortgage loans in growth areas (see Box 
3.2.1). The inspection revealed that 10 % of newly 
approved  loans  deviated  from  at  least  one  of  the 
seven  best  practices.  Banks  were  loosening  their 
credit  assessment  standards  mainly  due  to  strong 
competition in the housing loan market. On orders 
received  from  the  DFSA,  banks  had  to  take 
corrective steps regarding their internal procedures 
and governance.  

3.2.3.  ACCESS TO FINANCE 

Equity  is  the  main  source  of  financing  for 
Danish  companies.  The  Danish  stock  market, 
which  is  fully  integrated  into  the  Nordic  OMX-
Nasdaq  exchange,  is very deep.  In  2015,  the  total 
stock of listed shares issued by firms amounted to 
103 %  of  GDP,  almost  twice  the  EU  average 
(Graph  3.2.5).  The  share  of  venture  capital 
investment relative to GDP is also above the level 
observed in most EU countries.  

(12)  The macroprudential authority in Denmark is the Systemic 

Risk Council (SRC). 

(13)  The  six  identified  systemically  important  institutions  and 
their  respective  Systemic  Risk  Buffer  rates,  are:  DLR 
Kredit  A/S  (1 %),  Sydbank  A/S  (1 %),  Jyske  Banks  A/S 
(1.5 %),  Nordea  Bank  Danmark  A/S  (2 %),  Nykredit 
Realkredit A/S (2 %), and Danske Bank A/S (3 %). 

21 

0,0000,0050,0100,0150,0200,0250,0300,035020406080100120Listed shares;2015Debt securities;2015MFI loans; 2015Gross operatingsurplus:corporations;2015Venture capital(rhs); 2015DKEU% of GDP% of GDP 
                                                           
 
3.3.  LABOUR MARKET, EDUCATION AND SOCIAL POLICIES 

3.3.1.  LABOUR MARKET AND SOCIAL 

INCLUSION 

and 

rate 

high 

employment 

Despite  a  well-performing  labour  market,  with 
a 
low 
unemployment,  Denmark  faces  a  number  of 
labour  market  challenges.  In  the  context  of 
demographic ageing and the fiscal sustainability of 
the welfare system, it is important to ensure long-
term  labour  supply.    The  share  of  the  population 
above the age of 65 has increased from 16.3 % in 
2010  to  18.8 %  in  2016,  and  life  expectancy  at 
birth has likewise shown an upwards sloping trend. 
In  recent  years,  Denmark  has  adopted  labour 
market  reforms  to  promote  incentives  to  work. 
These  policy  measures  aim  at  closing  the  3.5 
percentage points (pps.) gap to Denmark's Europe 
2020 employment rate target of 80 %. This is also 
expected  to  contribute  to  the  long-term  fiscal 
sustainability of the Danish welfare model. 

People  on  the  margins  of  the  labour  market 
represent  both  a  loss  of  human  capital  and  a 
social  inclusion  challenge.  The  employment  rate 
of  people  with  disabilities  has  remained  stable  in 
recent years (approximately 50 % in 2013), despite 
initiatives  such  as  online  job  databases  for  people 
with  disabilities  and  increased  cooperation  with 
private companies. In 2015, there was a significant 
difference between the employment rate of people 
born in Denmark (78.4 %) and those born outside 
the EU (59.2 %) (Graph 3.3.1). This gap is one of 
the highest in the EU and it appears to be driven by 
a  lower  activity  rate  (where  the  gap  compared  to 
native born Danes is 13.7 pps., one of the highest 
in  the  EU)  and  a  higher  unemployment  rate  for 
both  genders.  The  employment  gender  gap 
between  men  and  women  increased  from  6.4  pps. 
in 2012 to 7.5 pps. in 2015, which remains below 
the EU average of 11.6 pps. in 2015. However, for 
is  particularly 
the  situation 
migrant  women 
unfavourable.  The  employment  rate  of  non-EU 
born  women  was  53.8 %  in  2015,  which  is  21.5 
pps.  below  the  level  reached  among  native-born 
women.  

likely  to 

faced  by 

first-generation 
The  challenges 
migrants  are 
impact  the  second 
generation  as  well.  Second-generation  migrants 
represented  around  4 %  of  the  total  population 
aged  15-34  in  2013,  while  those  with  a  mixed 
background  (only  one  parent  being  foreign-born) 

represented  5.7 %  in  the  same  group  (OECD, 
2015).  Young  people  aged  15-24  born 
to 
immigrant  parents  were  in  2013  almost  twice  as 
likely  to  be  unemployed  (unemployment  rate 
18.0 %)  compared  to  young  people  with  parents 
born  in  Denmark  (unemployment  rate  9.3 %) 
(OECD, 2015). 

Graph 3.3.1:  Employment rate by country of birth (ages 20-

64), 2015 

(1) Employment rates ages 20-64 (% of population), non-
seasonally adjusted 
Source: Eurostat, EU-Labour Force Survey 

Factors  behind  the  weaker  labour  market 
outcomes  of  non-EU-born  migrants  include  a 
lower  skill  level  and  an  underuse  of  higher 
skills.  Over-qualification  (work  which  requires 
skills  below  those  a  person  holds)  of  tertiary 
educated third-country nationals increased steadily 
between  2008  and  2015  from  34 %  to  41 %, 
compared  to  a  change  from  14 %  to  13 %  for 
Danish nationals in the same period. This suggests 
a  growing  sub-optimal  use  of  migrant  labour 
potential(14).  Migrants  have  access  to  Danish 
courses  free  of  charge,  but  the  difficulty  in 
mastering  the  Danish  language  is  an  important 
entry  barrier.  These  factors  are  likely  to  hamper 
overall  labour  market  performance  and  economic 
growth. 

The  skills  profiles  of  migrants  pose  an 
additional  challenge  to  the  labour  market.  In 
2015,  net  migration  was  42 000  people,  which  is 

(14)  Defined as the percentage of persons in employment with a 
high  educational  level  (tertiary  education)  who  are  in  low 
or medium skilled jobs. 

22 

2030405060708090NationalsEU28 mobileworkersThird countriesEU28DK% of population20-64 
 
                                                           
3.3. Labour market, education and social policies 

historically  high.  In  2015  —  as  was  the  case  for 
many EU Member States — Denmark received the 
highest  number  of  asylum  applications  in  more 
than 20 years (a total of 21 000). On average 85 % 
of all asylum seekers have been granted asylum in 
Denmark,  which  is  a  relatively  high  proportion 
compared  to  the  EU  average  of  51 %.  Net 
migration  of  third-country  nationals  has  likewise 
increased  significantly  in  recent  years,  from  some 
5 000  in  2011  to  25 000  in  2015.  This  has 
contributed to the fact that approximately 9.5 % of 
the  total  Danish  population  were  born  outside  the 
EU.  Migrants  often  face  more  obstacles,  take 
longer  to  integrate  into  the  labour  market  than 
natives,  and  tend  to  present  more  unfavourable 
labour  market  outcomes.  In  March  2016  the 
government  and  the  social  partners  reached  an 
agreement aiming at a significant strengthening of 
efforts  to  ensure  better  integration  in  the  labour 
market of refugees and persons reunified. 

Graph 3.3.2:  Unemployment rate by educational 
attainment (quarterly) 

(1) Unemployment rates ages 20-64 (% of labour force), non-
seasonally adjusted 
Source: Eurostat, LFS 

Youth  unemployment  in  Denmark  is  low  but 
remains a matter of concern. The unemployment 
rate of those aged 15-24 was 11.1 % in first half of 
2016,  which  is  well  below  the  EU  average  of 
18.9 %.  However,  there  are  indications  that  the 
NEET  rate  is  going  in  the  wrong  direction  in 
Denmark, even if this remains low in the European 
context  (6.2 %  as  compared  with  the  EU  average 
of 12.0 % in 2015).  

In  recent  years  the  Danish  government  has 
introduced legislation along the lines of the EU 
youth  guarantee  to  fight  youth  unemployment. 
All  young  people  without  an  ordinary  education 
receiving education benefit will receive an offer of 
activation  within  one  month.  The  offer  of 
activation has to be individually tailored and aimed 
at  education.  A  key  measure  for  the  vulnerable 
young people without an education is the ‘Building 
Bridge to Education’, which has shown significant 
positive  effects  for  the  target  group.  The  purpose 
of  the  initiative  is  to  bring  young  people  into 
education  and  ensure  that  they  finish  (STAR 
2016).  The  initiative  takes  place  at  vocational 
schools  and  consists  of  a  fixed  schedule  with 
various short internships at vocational schools and 
enterprises.  Furthermore,  the  young  persons  will 
participate  in  courses  to  upgrade  their  basic  skills 
in  reading,  writing  and  arithmetic.  The  young 
person  will  have  an  educational  mentor  who  will 
support  the  young  person  during  the  offer  and  in 
the  transition  to  education.  The  measure  is  now 
being  implemented  nationally  as  the  primary 
measure  for  this  target  group.  Nonetheless,  it 
remains  a  challenge  for  young  people  with  low 
educational  attainment  and  very  limited  work 
experience  to  enter  the  labour  market.  Around 
31 %  of  social  assistance  recipients  in  2015  were 
aged 16-29 years. 

The  share  of  the  population  at  risk  of  poverty 
or  social  exclusion  has  decreased  slightly  in 
recent years. In 2010 about 18.3 % of the Danish 
population  was  at  risk  of  poverty  or  social 
exclusion(15).  In  2015  this  share  has  fallen  to 
17.7 %  and  it  has  fallen  slightly  more  for  women 
than  for  men.  Further,  the  proportion  of  elderly 
(65+) at-risk-of-poverty or social exclusion almost 
halved, from 18.4 % in 2010 to 9.9 % in 2015. At 
the  same  time,  severe  material  deprivation  has 
increased  from  2.7 % 
to  3.7 %.  Despite  the 
negative  development,  this  remains  below  the  EU 
average.  The  situation 
for 
migrants,  with  39.9 %  of  the  non  EU-born  at  risk 
of  poverty  or  social  exclusion  (43 %  for  women). 

remains  critical 

(15)  Due  to  on-going  revisions  by  Statistics  Denmark  on  the 
SILC time series, data from 2011 and onwards are not fully 
comparable  to  earlier  data,  even  if  the  overall  tendency  is 
still  valid.  This  may  add  uncertainty  to  the  analysis  of 
indicators such as the Gini coefficient, the income quintile 
share  ratio  (s80/s20),  Risk  of  Poverty  (ROP)  and  Risk  of 
Poverty  or  social  Exclusion  (AROPE)  for  which  the  data 
comparison across time must be interpreted with caution. 

23 

02468101214Q1-2000Q3-2001Q1-2003Q3-2004Q1-2006Q3-2007Q1-2009Q3-2010Q1-2012Q3-2013Q1-2015Q3-2016High skilledMedium skilledLow skilled% of labour force 
 
                                                           
3.3. Labour market, education and social policies 

This  is  more  than  twice  the  level  for  natives 
(17.7 %).  

grow, the share of ICT specialists has been steady 
in recent years.  

in 

From 2008 to 2015 the number of people living 
in  low  work  intensity  households  increased  by 
35 %. This development implies that the gap to the 
national Europe 2020 target in the area of poverty 
and social exclusion, which is reducing the number 
of persons living in low work intensity households 
with  22 000  by  2020, 
increased  further.  In 
particular,  the  number  of  homeless  people  has 
recent  years(16).  The  Danish 
increased 
government  has  introduced  a  strategy  to  progress 
towards  its  10  social  mobility  goals,  which  are 
designed to give direction and greater emphasis to 
social  policy.  It  aims  to  decrease  the  number  of 
vulnerable  persons,  increase  the  activity  rate  and 
incentivise  more  people  to  start  an  education 
despite a physical or mental disability. Among the 
main target groups of the strategy are people with 
disabilities  or  social  problems,  marginalised 
people,  such  as  homeless  or  people  who  suffer 
from alcohol or drugs abuse.  

3.3.2.  LABOUR SUPPLY AND DEMAND  

types  of 

The  Danish  labour  market  is facing  a  shortage 
of certain types of labour. The main challenge is 
a  lack  of  workers  with  a  vocational  education.  In 
some  sectors,  including  the  construction  sector, 
this  issue  is particularly  critical.    This  shortage of 
labour,  or  potential  skills 
certain 
mismatch,  has  influenced  the  recent  reforms  of 
active  labour  market  policies  and  led  to  several 
educational reforms in recent years. A study by the 
independent 
institute 
skills  mismatch 
DREAM 
involving approximately 110 000 persons by 2025 
(Iversen et al. 2016). Another study, carried out by 
the  think-tank  Danish  Economic  Council  of  the 
Labour Movement, estimates a shortage of 70 000 
vocational  workers  in  2025  (Arbejderbevægelsens 
Erhvervsråd,  2016a).  There  is  also  a  growing 
demand  for  workers  with  ICT  skills.  While  these 
skills are particularly relevant to foster the capacity 
of  the  Danish  economy  to  further  innovate  and 

economic  modelling 
total 

suggests  a 

(16)  Between  2009  and  2015,  the  number  of  homeless  people 
increased  by  23 %  (from  4,998  to  6,138  persons).  In 
particular, the number of young homeless people (aged 25-
29)  has  grown 
to  799, 
corresponding to a growth rate of 29 %. 

significantly, 

from  617 

The lack of workers with a vocational education 
may  partly  be  caused  by  an  'image  problem'. 
This is related to a potentially misleading view on 
the  future 
the  quality  of 
job 
teaching  and 
the  difficulty  of 
opportunities.  Furthermore, 
finding  an  apprenticeship  place  —  which  is  the 
student's own responsibility and a compulsory part 
of  most  vocational  education  and  training  (VET) 
programmes  —  remains  a  key  challenge.  As  a 
result,  the  academically-oriented  upper  secondary 
programme, 
similar 
programmes  have  attracted  a  large  proportion  of 
the young people in recent years. 

'gymnasium',  and  other 

the 

skills 

required 

In  August  2016  the  Danish  government  and  a 
number  of  social  partners  agreed  on  a  plan  to 
ensure a sufficient level of skilled labour in the 
future.  The  employers'  side  committed  itself  to 
supplying  8 000-10 000  additional  apprenticeship 
places  by  2025,  in  order  to  encourage  young 
people to start a vocational education and thereby 
composition  of 
meet 
workers (Ministry of Employment, 2016b). This is 
expected to help progress towards the targets of the 
Danish  VET  reform  from  2015,  which  by  2025 
aims  at  30 %  of  a  youth  cohort  taking  up  VET 
directly  after  compulsory  schooling.  Financial 
sanctions  will  be  imposed  on  companies  that  do 
not  supply  the  required  apprenticeship  places.  It 
remains  too  early  to  assess  the  impact  of  the 
tripartite  agreement.  Furthermore,  the  recent  and 
future  arrivals  of  asylum  seekers  from  non-EU 
countries  could  potentially  provide  an  additional 
influx into the vocational education system. 

Mobility  of  workers  may  be  hampered  by  an 
increasing  problem  of  housing  affordability. 
Areas with job opportunities are typically the main 
metropolitan  areas  where  house  prices  are  the 
highest  and  where  supply-side  inefficiencies  limit 
available  housing  (see  Section  3.2).  The  low 
availability  of  cheap  housing 
is 
particularly a problem in the capital area. Lack of 
affordable  housing  could  contribute  to  labour 
market disequilibria in a geographical context and 
puts  pressure  on 
infrastructure  and  public 
transportation systems. 

solutions 

24 

 
                                                           
3.3. Labour market, education and social policies 

the excess amount(17). According to studies by the 
think-tank  Danish  Economic  Council  of 
the 
Labour Movement the ceiling is expected to affect 
around  30 000  people,  approximately  70 %  of 
whom 
children (Arbejderbevægelsens 
Erhversråd, 2016b). 

have 

introduced  work  requirement 
A  recently 
(October  2016)  aims  to  make  work  pay.  Those 
social  assistance  recipients  who  take  at  least  225 
hours  of  work  for  12  months  keep  the  right  to 
receive  the  full  amount  of  social  assistance,  and 
thereby  to  avoid  being  affected  by  the  social 
assistance  ceiling.  This  corresponds  to  six  weeks 
of  fulltime  work  or  six  hours  of  work  per  week. 
The  combined impact  of  the  ceiling  and  the  work 
requirement  is  estimated  to  increase  employment 
by  5-700  persons  (full-time  workers)  but  the 
impact on the incentive to work is still to be seen 
(Arbejderbevægelsens Erhversråd, 2016b). 

The  Danish  government  has 
introduced  a 
sequence  of  policy  measures  since  September 
2015,  with  the  overall  purpose  of  reducing  the 
improving 
number  of  asylum  seekers  and 
refugee integration. Recently introduced rules on 
conditions  for  asylum  seekers  and  refugees,  and 
the 'Asylum Package' of January 2016, resulted in 
a cut in the monthly benefits that refugees receive 
(depending  on  the  family  composition  of  the 
individual  refugee).  The  reduced  social  benefit 
applies  to  everyone  -  including  Danish  citizens  - 
not meeting the residence requirement (less than 7 
years  of  residence  in  Denmark  within  the  last  8 
years).  However,  the  overall  aim  is  to  deter 
immigration  and  encourage  refugees 
to  find 
employment  quickly  (Martín  et  al.,  2016).  The 
Danish  reaction  to  the  refugee  crisis  has  attracted 
domestic  and  international  attention,  in  particular 
the  legislation  on  stricter  conditions  for  family 
reunification, 
residence  permits  and 
declaring personal belongings of high financial but 
not  sentimental  value.  While  evidence  suggests 
that in the past Denmark’s lower social benefits for 
newcomers  –  the  'Start  Help'  –  have  slightly 
increased  employment  rates,  the  measure  has  also 
led  to  a  decrease  in  their  income  levels (Rosholm 
and Vejlin, 2010; Pedersen, 2013).  

shorter 

(17)  The  ceiling  does  not  take  into  account  child-related 

benefits. 

3.3.3.  SOCIAL TRANSFERS AND MIGRATION 

POLICY 

of 

the 

the 

long-term 

the  end  of 

job  market  at 

2010 
effects 
The 
unemployment  insurance  reform  have  been 
assessed  to  be  positive.  According  to  an  analysis 
by  the  Ministry  of  Employment,  the  shorter  two-
year  unemployment  insurance  period  has  resulted 
in  a  larger  share  of  the  unemployed  persons 
entering 
the 
unemployment  insurance  period,  compared  to  the 
previous  system    (four-year  period) (Ministry  of 
Employment,  2015).  Furthermore,  the  analysis 
shows  that  unemployed  people  aged  25-30  react 
more  strongly  and  earlier  to  the  expiry  of  the 
unemployment  insurance  period,  than  do  the 
unemployed  aged  30-55.  In  addition,  men  react 
earlier  to  the  reform  than  women.  Overall  it 
remains too early to assess the long-term impact of 
this reform, but short-term indicators point towards 
positive effects. 

A  political  agreement  was  reached  in  October 
2015  to  adjust  the  unemployment  insurance 
scheme towards making it more dynamic and to 
create incentives to work. The agreement allows 
for the possibility of prolonging the benefit period 
from two years to at most three years by taking on 
work (Ministry  of  Employment,  2016c).  In  the 
new  system  the  insured  unemployed  person  can 
use the hours worked to extend the benefit period, 
or  save  them  for  a  later  application  for  a  new 
benefit period. This should encourage unemployed 
people to look for work, but, at the same time, the 
possibility to prolong the benefit period could also 
lead 
increased  public  expenditure.  The 
possibility  of  prolonging  the  benefit  period  is 
the 
largely 
unemployment  benefit  rate  for  graduates  without 
children, from 82 percent of the maximum benefit 
rate to 71.5 percent. It is still too early to assess the 
long-term impact of this policy change.  

financed  by 

reduction 

in 

to 

a 

A  social  assistance  benefit  ceiling  entered  into 
force  in  October  2016.  The  ceiling,  which  is 
designed  to  increase  the  incentive  to  work,  sets  a 
limit  on  how  much  may  be  received  in  social 
benefits. Persons affected by the ceiling can regain 
all or some of the deducted benefits with relatively 
few hours of work. The exact limit is related to the 
family situation of the recipient. If the total amount 
of  benefits  exceeds  the  ceiling,  the  housing 
allowances and special support will be reduced by 

25 

 
                                                           
3.3. Labour market, education and social policies 

data,  the  proportion  of  low  achievers  (in  science) 
was  much  higher  for  foreign-born  (39.8 %)  and 
native-born  children  with  foreign-born  parents 
(37.8 %)  than  for  native-born  students  (12.6 %) 
(OECD,  2016).  While 
socio-economic 
background  explains  part  of  the  difference  in 
educational 
a  migration-specific 
disadvantage for both foreign-born and for native-
born  children  with  foreign-born  parents  remains 
even after adjusting for this(18). 

results, 

the 

to 

to  reverse 

Recent  reforms  aim  at 
improving  school 
outcomes  and  raising  academic  standards.  In 
April  2016,  the  government  proposed  a  reform  of 
general upper secondary education with the aim of 
raising  academic  standards  and  providing  a  solid 
preparation  for  higher  education.  One  objective  is 
to  boost  the  learning  of  mathematics  and  natural 
sciences 
trend  of  decreasing 
the 
numbers  of  students  choosing  natural  science 
subjects,  and  the  increasing  number  of  general 
upper  secondary  graduates  needing 
take 
supplementary courses in mathematics and natural 
sciences  to  meet  entry  requirements  for  tertiary 
education  studies (Leffland,  2014;  Productivity 
Commission,  2014).  The  higher  preparatory 
examination (the HF programme) will specifically 
target  students  that  prefer  Professional  Bachelor's 
Profession 
programmes 
programmes.  A  political  agreement  was  reached 
on  3  June  2016  between  the  government  and  a 
broad  group  of  political  parties  and  the  proposal 
for  the  legislative  change  was  passed  in  the 
Parliament in December 2016. The reform will be 
implemented  as  from  the  2017/2018  school  year. 
As  part  of 
reform  DKK 400 million 
(EUR 53.8 million) is being allocated in the period 
the  continuing  professional 
for 
2017-2024, 
development  of 
school 
teachers  and  high 
principals.  

Academy 

and 

the 

The  primary  and  lower  secondary  education 
school  reform  from  2014/15  aimed  to  address 
low 
levels  of  basic  skills  at  the  end  of 
compulsory  education  through  changes  to  the 
curriculum,  and  extending  the  length  of  the 
school day. Being accompanied by comprehensive 
evaluation and action-based research measures the 
first 
reform 
implementation  in  spring  2016  shows  that  the 
majority  of  municipalities  have  delegated  the 

published 

report 

the 

on 

(18)  Ordered according to adjusted difference for foreign born. 

into 

the 
including 

A number of recent agreements constitute some 
inclusion  of 
in  encouraging 
changes 
migrants 
their 
society, 
integration  into  the  labour  market.  In  the  past, 
refugees  adapted gradually  into  the  Danish labour 
market,  for  instance  via  language  courses.  The 
outcome  of  a  political  agreement  between  the 
Danish  government  and  the  social  partners  in 
March  2016,  the  tripartite  agreement  on  Labour 
Market  Integration,  focuses  on  early  intervention 
and job-oriented measures. Individual assessments 
are  now  carried  out  for  each  migrant  to  clarify 
their  professional  and  personal  needs.  Asylum 
seekers  are  screened  during  the  application  phase 
and  the  allocation  of  successful  applicants  to  the 
different  municipalities  are  tied 
to  their  job 
to  acquire  work 
opportunities.  Refugees  are 
experience  (traineeship,  wage  subsidy,  integration 
basic  education  or  an  ordinary  job)  within  one 
month  after  arrival  to  the  municipality.  They  may 
work at an apprentice salary level, or participate in 
the  ‘Education  for  Integration’  (IGU) programme. 
A  cash  bonus  scheme  applies  for  companies  that 
enter 
into  IGU  contracts  and  hire  refugees 
(DKK 20 000 – i.e. EUR 2 700 - after 6 months of 
employment  and  an  additional  DKK 20 000  on 
completion of the two-year programme). 

3.3.4.  EDUCATION 

School  education  outcomes  in  Denmark  are 
in  terms  of 
above  the  EU  average,  both 
performance  and  equity.  According  to  OECD 
PISA  2015,  the  proportion  of  low  achievers  in 
basic  skills  among  15-year-olds  is  significantly 
lower than the EU average (16  % in science, 15 % 
in  reading,  14 %  in  mathematics).  Performance  in 
maths  significantly  improved  compared  to  2012, 
while  remaining  broadly  stable  in  reading  and 
science.  Gender  gaps  and  the  impact  of  socio-
economic  status  on  performance  are  among  the 
lowest in the EU (OECD, 2016).  

However,  the  situation  of  students  with  a 
migrant background continues to be of concern. 
In 2015, around 9.5 % of non-EU born aged 18-24 
were early school leavers, slightly higher than the 
average  among  native-born  (7.7 %).  The  situation 
is more problematic among non-EU born men with 
an early school leaving rate of around 13.2 %, 3.7 
pps.  above  the  level  recorded  among  native-born 
men  (9.5 %).  Moreover,  according  to  PISA  2015 

26 

 
                                                           
3.3. Labour market, education and social policies 

identified  four 

responsibility for  implementation of  the reform  to 
the  schools  directly.  A  recent  survey  by  the 
Association  of  Danish  Municipalities  shows  that 
all  municipalities  see  progress  through  a  more 
varied  and  motivating  school  day  (KL  2016). 
However,  a  survey  by  the  Danish  Union  of 
teachers 
Teachers 
to 
to  prepare 
complain  about 
classroom 
(Danmarks  Lærerforening, 
2016).  One  study  of  the  Danish  National  Centre 
for  Social  Research  identifies  increasing  well-
being  of  students  and  increasing  interest  of  the 
courses  taught.  However,  82 %  of  students  found 
the school day too long in 2016 compared to 46 % 
in 2014 (SFI, 2016). 

in  five 
time 

insufficient 

lessons 

It 

refugee 

to  288 

children. 

in  2015,  according 

The  Government  is  taking  steps  to  integrate 
recently  arrived  asylum  seeker  and  refugee 
children into the education system. The tripartite 
agreement  between  the  Danish  government  and 
social  partners  on  Labour  Market  Integration 
(March 2016), mentioned above, also concerns the 
reception  of 
allows 
municipalities  to  increase  the  number  of  refugees 
in reception classes from 12 to 15, especially if the 
pupils  have  the  same  language  background.  The 
number of reception classes has increased from 24 
in  2006 
the 
Association  of  Danish  Municipalities  estimates. 
Recent  legislation  also  provides  that  foreign-born 
young  people  —  including  refugees  over  the 
compulsory  school  age  but  less  than  25  years  old 
— may participate in compulsory school education 
if it is considered to be the most relevant option to 
ensure their integration and enable them to enrol in 
education 
the 
future (Ministry  of  Education,  2016a).  If  refugees 
are assessed to be ready for the labour market, they 
must  participate  in  a  scheme  of  combined  work 
placement  and  labour  market  training,  including 
learning Danish as a foreign language (Ministry of 
Immigration and Integration, 2016).  

employment 

find 

or 

in 

to 

27 

 
3.3. Labour market, education and social policies 

28 

 Box 3.3.1: Selected highlights -  FlexicurityThe Danish labour market is characterized by a high degree of flexicurity and has traditionally been seen as a 'role-model' for other Member States. The combination of security in employment and income - as well as flexibility in relation to hiring and firing of workers - ensures that both employees and employers are willing to take on risks on the labour market. To support this system, the Danish unemployment insurance scheme is relatively generous and active labour market policies are designed to effectively increase the incentives to work. As a result, the labour market in Denmark is very dynamic, with a total of approx. 800,000 job openings (recruitments) each year, to serve a labour force of around 1.7 million persons. In order to sustain this high level of flexicurity the Danish government has introduced a number of policy measures in recent years. The active labour market policy reform from 2014 aims at shortening the unemployment spells and ensuring sustainable employment with a preventive focus on recently unemployed. In 2015, changes to the content of the active labour market policy and to the organisation of the Public Employment Services (PES) entered into force. The reform aims to provide better and more individualised support for the unemployed, and includes a state-to-municipality reimbursement for active labour market policy services provided to the unemployed, which is gradually reduced the longer the individual is unemployed. This ‘stair-case model’ reinforces the economic incentives for municipalities to favour effective active labour market policy measures and avoid citizens entering into long-term unemployment. From 2011 onwards the government has introduced a sequence of labour market policies with the aim to make work pay, and to avoid an increase in the number of social benefit recipients. In June 2016 the unemployment insurance scheme was adjusted towards making it more dynamic and to create more incentives to work. The main purpose is to strengthen the incentive to take on all types of employment during the unemployment benefit period. In the new system the insured unemployed person can use the hours worked doing the unemployment benefit period to extend the benefit period from two years to at most three years by taking on work, or save them for a later application for a new benefit period. This will contribute to labour market stability and benefit both employees and employers. Reforms were also made to the social assistance system with the aim to avoid inactivity traps and stimulate the incentives to work. In October 2016 a social assistance benefit ceiling and a work requirement entered into force. The ceiling sets a limit to the total amount of social benefits to be received and if exceeded, the housing allowances and special support will be reduced. The work requirement implies that those recipients, who take at least 225 hours of work over 12 months, corresponding to six weeks of fulltime work, keep the right to receive the full amount of social assistance benefits.  
 
 
 
 
 
3.4. INVESTMENT 

3.4.1.  PRODUCTIVITY DEVELOPMENTS 

absorption  of  highly  skilled  by  the  public  sector 
(Productivity Commission 2014b).  

Over the last 20 years, Denmark’s productivity 
has  grown  broadly  in  line  with  the  euro  area 
average.  The  actual  level  of  productivity  in 
Denmark,  as  measured  by  gross  value  added 
(GVA)  per  hour  worked,  is  one  of  the  highest  in 
the  EU.  In  2015,  Denmark  had  the  fourth  highest 
productivity  level  after  Luxembourg,  Ireland  and 
Belgium 
five  decades, 
productivity  growth  in  Denmark  has  followed  a 
trend  similar  to  that  in  many  other  advanced 
economies,  with  high  productivity  growth  in  the 
1970s  and  1980s  being  replaced  by 
lower 
productivity growth in subsequent decades (Graph 
3.4.1).  

(19).  Over 

the  past 

Graph 3.4.1:  Productivity growth 

(1) The graph shows average annual growth in  
GDP per hour worked. 2010s covers the period 
2010-2015. 
Source: OECD 

for 

The  Productivity  Commission  pointed  to  a 
the 
number  of  possible  explanations 
relatively  weak  productivity  growth.  In  2012-
2014,  the  Productivity  Commission  presented  a 
number  of  studies  on  the  weak  productivity 
to 
development 
explanations  such  as  weak  competition  in  the 
domestically  oriented  services  sector,  weaknesses 
in the Danish education system, weak productivity 
growth  in  the  public  sector  and  a  too  large 

in  Denmark. 

It  pointed 

(19)  According  to  Eurostat  and  measured  by  nominal  (PPS.) 

labour productivity per hour worked. 

The  decline  in  oil  and  gas  production  in  the 
North  Sea  dragged  down  total  productivity 
growth.  Focusing on the non-agriculture business 
sector,  a breakdown of  productivity  developments 
in  different  industries  reveals  that  the  decline  in 
production of oil and gas in the North Sea,  which 
is  categorised  within  ‘Mining  and  utilities’,  has 
had  a  negative  impact  on  Danish  productivity 
growth  in  recent  years.  This  is  an  industry  with  a 
very  high  level  of  GVA  per  hour,  but  with  a 
total  employment. 
relatively 
Compared 
the 
contribution from the services sector has declined. 
This sector’s contribution in 2011-2015 is broadly 
line with that in the euro area, while it is strikingly 
lower than in Sweden. (Graph 3.4.2). 

share  of 
the  period  1996-2010, 

low 
to 

Graph 3.4.2:  Contributions to productivity growth 

(1) The graph shows the simple average of growth rates and 
contribution to growth rates in the given period in the non-
agriculture business sector. Service is here defined as 
business sector services excluding real estate. 
Source: OECD 

by 

an 

shift 

inter-sector 

Productivity  growth  has  also  been  dragged 
down 
from 
manufacturing  to  services.  While  productivity 
growth  has  been  high  in  manufacturing  over  the 
last 20 years, this is a sector in decline in terms of 
hours  worked  (Graph  3.4.3).  Employment  growth 
is  strongest 
the  services  sector,  where 
productivity growth has been slower. Overall, it is 

in 

29 

00,511,522,533,544,5DKDENLSEUKUS1970s1980s1990s2000s2010s-1,0-0,50,00,51,01,52,02,53,03,51996-20102011-20151996-20102011-20151996-20102011-2015DKEASWEMining and utilitiesServiceManufacturingConstructionpps. 
 
                                                           
 
 
3.4. Investment 

estimated that the sectoral shift could have reduced 
productivity  growth  by  0.3  pps.  per  year  from 
2011-2015 (Jensen and Jorgensen, 2016).  

Graph 3.4.3:  Sector dynamics 1995-2015 

Graph 3.4.4:  Business investment to GDP ratio 

Source: Eurostat 

(1) The graph compares average annual growth in 
productivity and hours worked. The bubble size indicates the 
sector's share of total gross value added in the non-
agriculture business sector excluding real estate. 
Source: OECD 

the 

certain 

services 

Weak  productivity  growth  may  have  been  a 
driver behind the low business investment rate. 
The  low  investment  level  after  the  financial  crisis 
has  been  driven  by  weak  business  investment 
(Graph  3.4.4),  while  public 
investment,  by 
contrast,  rose  steadily  from  2005  to  2014,  and  is 
now  well  above  the  EU  average.  In  the  longer-
term,  the  decline  in  the  business  investment  rate 
may  be  explained  by  the  weak  growth  in  total 
factor productivity, together with the sectoral shift 
sector 
to 
from  manufacturing 
(Productivity  Commission  2014a).  A  moving  out 
of 
to 
globalisation, as well as cheaper investment goods 
and  a  better  utilisation  of  the  capital  stock  due  to 
technological  progress,  may  also  be  significant 
drivers 
(Kramp  and  Pedersen,  2015).  Low 
investment levels in Denmark and in the euro area 
measured  as  a  proportion  of  GDP  is  a  long-term 
trend. It is difficult to assess, therefore, the degree 
to which the current level of business investment is 
a  continuation  of  the  long-term  decline,  or  if  it  is 
more  related  to  the  current  cyclical  position,  with 
can 
suppressed  demand.  Weak 
nevertheless  point  to  a  downside  risk  for  future 
economic growth for Denmark. 

investments  due 

investment 

types  of 

High  differences 
in  mark-ups  between 
manufacturing  and  services  suggest  lack  of 
sufficient  competition  in  the  latter.  Mark-ups 
represent  the  difference  between  the  cost  of  a 
product  or  service  and  the  price  charged  for  it. 
According to a study from the Danish Ministry of 
Finance,  the  median  mark-up  for  Danish  private 
services  in  2002-2012  was  11.9 %,  against  a 
corresponding 
the 
manufacturing sector (Ministry of Finance, 2016). 
This suggests a lack of competition in the services 
sector,  which  reduces  pressures  for  innovation, 
efficiency  and,  ultimately,  productivity  growth.  In 
this  respect, 
the  domestically-oriented  service 
sectors  shielded  from  foreign  competition  have 
(Productivity 
been 
Commission 2014b, see Section 3.4.3). 

important 

identified 

3.2 % 

value 

for 

of 

as 

The  previous  government  proposed  a  growth 
plan  in  August  2016,  including  a  series  of 
measures  aimed  at  improving  the  productivity 
of  Danish  businesses.  The  plan  proposed  an 
increased  use  of  international  standards,  which 
would make it easier for foreign firms to operate in 
Denmark,  and  thus  increase  competition,  notably 
in construction. A proposal for a new independent 
Danish  Productivity  Board  was  passed  by  the 
Danish  Parliament  on  19  December  2016.  The 
Board  took  up  office  in  January  2017  and  will 
follow 
temporary 
footsteps  of 
Productivity Commission  that worked  from  2012-

the 

the 

in 

30 

TotalMining & utilitiesManufact.Construct.Service-2-101234-3-2-1012Productivitity growthGrowth in hours worked9101112131420022003200420052006200720082009201020112012201320142015EA19DKDENL% of GDP 
 
 
to 

2014  (20).  The  new  and  permanent  board  will  be 
tied 
the  Danish  Economic  Councils,  an 
independent  economic  advisory  body,  and  will 
continue the work of its predecessor in promoting 
Danish  productivity  growth  by  providing  policy 
advice.  The  new  Danish  Productivity  Board  also 
represents Denmark's answer to the call by the EU 
to  create  National  Productivity  Boards  across 
Europe. 

3.4.2.  BUSINESS ENVIRONMENT  

Denmark continues to provide a sound business 
environment  for  SMEs.  The  country  performs 
very  well  in  Small  Business  Act  areas  related  to 
internationalisation,  skills  and  innovation,  and 
'responsive administration'. Since 2008, substantial 
progress has been made in implementing the Small 
Business  Act,  notably  as 
reducing 
administrative burden.  

regards 

There 
is  significant  business  dynamism  in 
Denmark  which  can  be  identified  from  the 
churn  rates  (the  sum  of  the  birth  and  death  rates 
of  enterprises).  Even  though  enterprise  birth  rates 
have  been  in  line  with  the  EU  average  (and 
actually exceeded it in 2014) (21), enterprise death 
rates  are  higher  (22).  This  results  in  survival  rates 
that are below the EU average after one and three 
years of the creation of the firm (23), although five-
year  survival  rates  in  2014  were  above  the  EU 
average  (DK:  45.7 %;  EU  average:  44.5 %). 
Denmark  is  still  below  countries  such  as  Austria 
(53.8 %),  the  Netherlands  (51.5 %)  and  Sweden 
(56.7 %).  

(20)  The  Confederation  of  Danish  Industry  has  found  that,  in 
two  years,  around  a  third  of  the  temporary  Productivity 
Commission's recommendations have been at least partially 
implemented. 

(21)  2014: DK (11.1 %), EU (10.7 %). Data: Eurostat. 
(22)  2013: DK (11.0 %), EU (9.8 %). Data: Eurostat. 
(23)  2014:  Survival  rates  after  1  year  (DK:  73.6 %;  EU  except 
Greece  and  Ireland:  83.1 %);  Survival  rates  after  3  years 
(DK: 52.3 %; EU: 60.1 %). 

3.4. Investment 

Graph 3.4.5:  Churn rate (birth rate + death rate) of 

enterprises by sector, 2011 

Source: "Science, Research and Innovation Performance of 
the EU" (2016) 

Danish start-ups are characterised by low start-
up  size,  low  start-up  ratios  and  low  net  job 
creation (Calvino et al., 2015). Denmark is a small 
country, so it is not unusual that Denmark has one 
of  the  smallest  average  sizes  at  entry,  and  much 
lower than in many other Member States. Start-up 
ratios  in  Denmark  are  significantly  lower  than  in 
other  Member  States  such  as  Spain,  Sweden,  the 
Netherlands and Italy. (24) In Denmark, the net job 
creation by entrants that survive at least three years 
represents  around  2.5 %  of  overall  employment, 
lower than in other Member States such as Spain, 
Italy, Hungary and Sweden.(25)  

is 

in  Denmark 
identified  as  a 
Scaling-up 
challenge 
for  SMEs.  Denmark  has  many 
successful  companies,  but  all  of  the  20  largest 
companies  are  over  30  years  old,  while  smaller 
successful  companies  have  not  been  incentivised 
or  able  to  expand.  Previous  programmes  were  in 
place  to  support  start-ups,  but  did  not  address 
growth.  The  Government  started  an  initiative  on 
scale-ups  in  order  to  address  the  problem  of  slow 
growth. 
through 
‘Scale-Up  Denmark’  works 
private  organisations  but  is  financed  by  public 
funds (EUR 22 million), half of which come from 
the  five  Danish  regions  and  half  from  the  EU 

(24)  Start-up ratio: measured as the number of entrants relative 

to the country’s total employment. 

(25)  For  every  existing  100  jobs  in  the  economy  in  any  given 
year, the start-ups which are born in that year will add 2.5 
new jobs within the following three years 

31 

0510152025303540PTSKBGUKDKHULVCZROSIESLUNLDEFRITMTATSEFIBEMarket servicesIndustryConstructionRetail trade% 
                                                           
 
 
                                                           
(ERDF).  It  works 
together  with  established 
businesses  and  makes  use  of  their  expertise  to 
guide  new  firms  looking  to  expand  through 
training,  mentoring  and  help  to  access  finance. 
Their  work  is  carried  out  through  hubs  based  on 
field  of  business  rather  than  region,  which  allows 
for more specialised support. Scale-up Denmark is 
largest  Scandinavian  accelerator 
currently 
programme. The objectives of this programme are 
(1)  to  increase  the  number  of  high-growth  start-
ups;  (2)  to  provide  established  companies  with 
innovation  opportunities; 
to  build  next-
generation  serial  innovators;  and  (4)  to  develop 
self-sustaining  ecosystems  that  persist  without 
public funding. 

the 

(3) 

Danish firms continue to have one of the highest 
digital  intensities  in  the  EU.  When  measured 
against the twelve key digital technologies covered 
by  the  Digital  Intensity Index,  more  than  45 %  of 
companies  in  Denmark  are  highly  or  very  highly 
digitised,  twice  the  European  average  of  around 
22 %.  Denmark  is  also  one  of  the  top  three 
Member  States  for  the  adoption  of  ICT-related 
international  Digital 
the 
business  processes: 
Economy  and  Society  Index  (I-DESI)  indicator 
covering  these  issues  shows  Denmark  is  close  to 
US  levels.  The  Danish  government  has  assigned 
EUR 5.6 million to a business partnership focusing 
on  advanced  manufacturing  for  SMEs  (so-called 
MADE  project,  which  will  run  from  2016  to 
2019).  The  purpose  of  the  partnership  is  to  boost 
the level of automation and digitisation among the 
small and medium-sized manufacturing companies 
in  Denmark.  As  part  of  the  business  partnership, 
manufacturing companies can apply for funding to 
help  analyse  how  they  can  implement  automation 
their  production 
and  digital 
processes.  The  Danish  Business  Authority 
manages the business partnership, and members of 
the 
industry 
stakeholders as well as the Danish GTS Advanced 
Technology  Group (26).  A 
134 
manufacturing  companies  from  all  over 
the 
country applied and 53 were selected.  

partnership 

solutions 

business 

include 

total 

into 

of 

(26)  GTS  Advanced  Technology  Group  is  a  network  of 

approved technical service providers 

3.4. Investment 

Graph 3.4.6:  Digitisation of enterprises 

(1) Proportion of enterprises with high or very high digital 
intensity index (DII) by Member State, 2015 
Source: European Commission 

The  Danish  authorities  have  drawn  up  a 
national action plan on regulated professions. In 
its  national  action  plan,  Denmark  announces 
changes  affecting  about  40  regulated  professions. 
These  changes  vary  in  their  scope  and  likely 
impact.  They  cover 
types  of 
measures: abolition of the scheme, change of rules 
and  requirements,  change  in  reserved  activities, 
change  of  administration,  further  digitisation, 
simplified  guidance,  modernisation,  merger  of 
schemes and further regulation. 

the  following 

Public procurement  

The  Public  Procurement  Act  has  been  revised 
with  the  aim  of  enhancing  competition.  The 
Public  Procurement  Act,  which  implemented  the 
EU  Procurement  Directive  and  took  effect  on  1 
January  2016,  gathers  all  procurement  legislation 
into  one  single  legal  act.  It  sets  out  the  overall 
framework  for  all  public  procurement  and  makes 
requirements upon potential bidders more flexible. 
For  instance,  all  the  requested  labour-related 
documentation of the company now only needs to 
be submitted by the company which is awarded the 
tender.  Furthermore,  the  Public  Procurement  Act 
requires  that  a  contracting  authority  provides  a 
reason  if  a  tender  is  not  divided  into  smaller  lots. 
Further  improvement  in  the  public  procurement 
process for SMEs is needed on collective bidding. 
The  adopted  Public  Procurement  Act  needs  to  be 
fully  implemented,  in  particular  by  municipalities 

32 

01020304050DKNLFIBESEMTLTATESLUIEDEUKEU28EECZFRHRSKCYSIPTPLHULVITROBGEL%High DIIVery high DII 
                                                           
 
 
genuinely taking into the account the elements that 
favour SMEs. 

3.4.3.  COMPETITION IN THE SERVICES SECTOR  

More  competition  in  the  services  sector  would 
increase  productivity  and  economic  growth. 
Services  account  for  more  than  60 %  of  Danish 
exports  in  value  added  terms.  Services’  share  of 
total  inward  investment  is  also  high,  indicating 
relatively  low  restrictiveness  in  services  trade. 
However,  Denmark  can  improve  efficiency  by 
services  markets, 
enhancing  competition 
particularly  by 
remaining 
focusing  on 
horizontal measures that affect all types of services 
as  well  as  certain  service  sectors  where  specific 
restrictions  remain,  notably  retail 
trade  and 
construction  as  well  as  wholesale  and  transport 
services. 

the 

in 

Retail sector 

Market  concentration  in  the  Danish  retail 
sector is one of the highest in Europe. Prices are 
the  highest  in  the  EU  for  categories  such  as  food 
and  non-alcoholic  beverages,  footwear,  clothing 
and consumer electronics, and the difference to the 
price  levels  of  other  Nordic  markets  such  as 
Sweden and Finland has been increasing. 

grocery  market 

leaders  have  maintained 

The  Danish 
remains 
concentrated  with  the  three  biggest  grocery 
chains  representing  84 %  of 
the  market 
(Ministry  for  Business  and  Growth,  2015).  The 
their  strong 
market 
position 
as 
such 
hypermarkets  and  soft-discount  shops.  Sales  in 
more  expensive  channels  such  as  supermarkets 
have  been  declining.  The  hard-discount  model, 
represented  exclusively  by  foreign  retail  chains, 
has also been losing market shares.  

store  models 

offering 

The store-based non-grocery sector faces strong 
competition  from  e-commerce.  Internet  retailing 
rate 
has  been  growing  at  a  double-digit 
(Euromonitor  2015).  The  market  recently  saw  the 
entry  of  a  big  format  omni-channel  electronics 
retailer  with  a  strong  focus  on  price  and  service 
quality,  which  could  help  competition  in  this 
segment. 

3.4. Investment 

of 

planned 

The  entry  and  expansion  of  new  competitors 
with  store-based  operations  would  be  eased  by 
the 
planning 
liberalisation 
regulations.  A  draft  reform  of  the  Planning  Act, 
on  which  political  agreement  was  eventually 
reached in June 2016, is planned to be adopted and 
come into force in 2017.  The Planning Act reform 
concerns the removal of size caps for non-grocery 
stores and raising them to some extent for grocery 
stores.  In  their  current  form,  the  amendments  are 
less  ambitious  than  the  original  proposal.  The 
maximum  surface  threshold  for  grocery  stores  in 
small local centres will increase from 1 000 m2 to 
1200m2,  while  the  original  proposal  envisaged 
increasing it to 2 000m2. However, the proposal to 
increase the limit for grocery stores in city centres 
and  district  centres  from  3 500  m2  to  5 000  m2  is 
maintained.  Furthermore, 
the  government  has 
proposed  allowing  municipalities  to  designate 
areas  which  would  provide  space  for  shops  with 
surface areas up to 3900 m2 which cannot easily be 
located in the city centre and to expand the already 
existing  ones  (according  to  the  current  rules, 
planning for new areas of this type is possible only 
in  the  cases  of  Copenhagen  and  Aarhus).  The 
proposed  amendments  may  significantly  ease 
establishment  conditions  for  non-grocery  stores, 
but  they  do  not  go  very  far  in  proposing  more 
liberal conditions for grocery stores.  

The proposed liberalisation of the Planning Act 
aims  to  strengthen  municipalities’  ability  to 
take  local  issues  into  consideration  in  retail 
planning.  In  order  to  ensure  that  the  legislative 
changes, once adopted, are correctly implemented, 
the  government  intends  to  provide  guidelines  for 
local authorities in order to ensure that competition 
is taken into account in planning objectives and to 
clarify  establishment 
for  e-commerce 
companies with showrooms. The government also 
intends  to  monitor  implementation  on  an  annual 
basis and provide guidance to municipalities on the 
application of the new rules.  

rules 

Construction 

Denmark  has  taken  positive  action  on  its 
construction 
the 
strategy.  As 
implementation of the strategy ‘Towards a stronger 
construction  sector  in  Denmark’,  in  2016  the 
Danish  government  proposed  amendments  to  the 
Building  Regulation  to  simplify  the  building 
permit  procedure.  Furthermore,  the  mapping  of 

regards 

33 

 
3.4. Investment 

municipalities  to  decide  if  more  taxis  are  needed. 
Moreover,  currently  restricted  operation  radii  will 
be  replaced  by  a  nationwide  area  of  operation  for 
all licensed drivers. It will be for each operator to 
decide where in Denmark to operate, during which 
hours, and which services it will offer (Ministry of 
Transport, Building, and Housing, 2016). 

national  standards  in  building  regulations  was 
finalised  in  2015,  and  it  is  now  being  assessed 
whether  these  can  be  abolished  or  replaced  by 
European standards. Further positive steps include 
the action taken on building permits and standards, 
and  additional  action  such  as  updating  the  law  on 
electrical  installations  to  increase  the  use  of 
international  and  European  standards  (adopted  in 
2015).  These  steps  could  ensure  that  Danish 
requirements  imposed  on  service  providers  in  the 
construction sector, which are currently one of the 
most restrictive in the EU, are liberalised further. 

Wholesale trade 

in 

than 

report 

Denmark  is  one  of  the  Member  States  where 
wholesale  trade  plays  the  greatest  role  in  the 
economy  in  terms  of  employment,  turnover, 
value  added  and  linkages  to  other  sectors.  It  is 
also characterised by higher price levels and price 
other  Member  States, 
increases 
notwithstanding  its  relatively  low  concentration 
(Dachs  et  al.,  2016).  However,  as  pointed  out  in 
the  Productivity  Commission's 
on 
competition,  internationalisation  and  regulation, 
strong  vertical  integration  makes  the  wholesale 
sector  more  concentrated  de  facto 
the 
numbers suggest, as the high concentration in retail 
trade  and  other  sectors  to  which  the  wholesale 
sector  is  linked  spills  over  into  the  wholesale 
sector  as  well  (Productivity  Commission,  2014a). 
The  Productivity  Commission  identified  it  as  one 
of the sectors with the largest productivity gaps in 
relation  to  other  economies,  while  the  Danish 
Economic  Councils  (2010)  estimated  that  total 
factor productivity in wholesale trade could rise by 
7 % – more than in any other sector analysed – by 
reallocating productive resources from the least to 
the most productive wholesalers.  

than 

Taxi services 

Measures  have  been  announced  to  achieve  a 
single  market  for  taxis 
in  Denmark.  The 
Productivity  Commission  (2014a)  recommended 
the  removal  of  restrictions  on  the  number  of  taxi 
licences or on the basis of geographical entities, in 
order 
It  also 
recommended  more  efficient  regulation  of  taxi 
fares. The government has outlined its intentions to 
reform  the  taxi  sector  by  abolishing  the  limit  on 
the  number  of  taxi  licences,  current  requirements 
on  the  own  capital  of  operators  and  the  right  of 

to  enable  more  competition. 

34 

 
3.4. Investment 

(Continued on the next page) 

35 

 Box 3.4.1: Investment challenges and reforms in DenmarkMacroeconomic perspective  The investment level in Denmark remains below the EU average. Investment as a share of GDP was broadly at EU average levels until 2008, but it took a severe hit in the crisis and has remained below the EU average since then even if total investment growth has been moderately positive for the last five years. In particular equipment and machinery, as well as construction investments are lagging behind. The investment level is expected to gradually pick up in the coming years, as the maturing recovery leads to higher capacity utilisation. Robustly growing house prices are forecast to provide further impetus for dwellings investment in the coming years. Public investments, supporting the economy during the crisis, reached a historically high level in 2014, but they are expected to continue declining gradually towards levels more in line with historical averages. Assessment of barriers to investment and ongoing reforms   Overall, barriers to private investment in Denmark are relatively moderate as confirmed by the European Commission assessment (European Commission, 2015b).  Some reforms are envisaged to ease restrictions in the retail sector and increasing competition in the construction sector (Section 3.4.3); while others have been adopted to further foster the cooperation between academia, research and business (Section 3.5.1). These measures could support investment and productivity growth in the medium term.  Nevertheless, Denmark faces certain barriers to investment, in particular in productivity developments in the domestic services sector have been particularly weak and infrastructure investment needs are high (Section 3.5.3).  Main barriers to investment and priority actions underway 1. Among the main barriers to investment, planning restrictions in the retail sector remains a key aspect as well as existing building regulations and requirements in the construction sector. The government has announced further liberalisation of retail planning restrictions, proposed amendments in the Building Regulation to simplify the building permit procedure and taken steps to increase competition in the construction sector (such as modernisation of the law on electrical installations to increase the use of international and European standards). 2. Collaboration between public research and businesses could be further improved. Even though R&D spending relative to GDP is high in Denmark, it is not translated adequately to economic growth, productivity and investment. There are barriers to the utilisation of university research, such as complexity in the regulatory system that regulates cooperation between the universities and the business sector. The government has taken several initiatives in this area, including Public administration/ Business environmentRegulatory/ administrative burdenFinancial Sector / TaxationTaxationPublic administrationAccess to financePublic procurement /PPPsR&D&ICooperation btw academia, research and businessCSRJudicial systemFinancing of R&D&IInsolvency frameworkSector specific regulationBusiness services / Regulated professionsCompetition and regulatory frameworkRetailCSRLabour market/ EducationEPL & framework for labour contracts ConstructionCSRWages & wage settingDigital Economy / TelecomEducation EnergyLegend:TransportNo barrier to investment identifiedCSRInvestment barriers that are also subject to a CSRSome progressNo progressSubstantial progressLimited progressFully addressed 
 
 
 
 
 
3.4. Investment 

Box (continued) 

36 

 setting up a working group between universities and the business sector and launched an Innovation Fund that will also support investments and long-term partnerships.   3. Denmark faces investment needs in its transport infrastructure, stemming on the one hand from projected faster growth of freight and passenger transports than of the overall economy, on the other hand from a need to meet higher climate, security and performance requirements as well as higher expectations from consumers. The pressure is particularly high on the transport systems in and around greater Copenhagen, where further investment in public transport infrastructure to improve connectivity could also help to alleviate some of the constraints caused by the housing shortage. Emerging bottlenecks in the supply of labour to the construction sector may hold back infrastructure investment.  
 
 
 
 
 
 
 
3.5. SECTORAL POLICIES 

3.5.1.  RESEARCH AND INNOVATION 

there  has  been  a  downward  trend  towards  1.87 % 
of GDP in 2015 (see Graph 3.5.1).  

Denmark has already reached the national 2020 
R&D  intensity  target  of  3 %  of  GDP (27). 
However,  resources  for  public  research  were 
reduced  in  2016.  Denmark's  R&D  intensity  has 
developed positively from 2.51 % of GDP in 2007 
to  3.03 %  of  GDP  in  2015.  Despite  the  reduction 
of 
in  2016, 
Denmark´s  public  R&D  intensity  is  expected  to 
remain above 1 % of GDP according to the Danish 
Agency  for  Science,  Technology  and  Innovation 
(DASTI),  after  having  reached  1.14 %  of  GDP  in 
2015.  

investment 

in  public 

research 

Graph 3.5.1:  Denmark - development of business R&D 

intensity and public R&D intensity, 2000-2015 

(1) Business R&D intensity: Business enterprise expenditure on 
R&D (BERD) as % of GDP.        
(2) Public R&D intensity: Government intramural expenditure 
on R&D (GOVERD) plus higher education expenditure on 
R&D (HERD) as % of GDP.          
(3) Business R&D intensity: Break in series between 2007 and 
the previous years.  
(4) Public R&D intensity: Breaks in series between 2002 and 
the previous years and between 2007 and the previous 
years.          
Source: Eurostat 

Private  R&D  investment  as  a  percentage  of  GDP 
was  still  one  of  the  highest  in  the  EU  in  2015. 
There  has  been  a  significant  increase  in  the 
intensity 
R&D 
Expenditures  (BERD)  between  2007  and  2009 
from  1.76 %  to  2.14 %  of  GDP,  but  since  then 

Enterprise 

Business 

of 

of 

skills 

appropriate 

in  new  graduates 

The  human  resources  base  in  science  and 
technology  has  successfully  expanded  but  the 
availability 
and 
competences  to  meet  current  needs  of  the 
labour market is a challenge. Eurostat reports an 
increase 
in  science  and 
engineering  per  thousand  population  aged  25-34 
between  2007  and  2014  with  Denmark  ranking 
third  in  the  EU.  The  number  of  researchers  per 
thousand  of  employment  also  showed  a  positive 
trend.  Additionally,  researchers  (FTE)  have  been 
absorbed  by  the  business  sector  to  a  remarkable 
extent with Denmark ranking one of the best in the 
EU in this respect in 2015. Despite the significant 
progress  already  achieved,  industry  has  expressed 
a concern that in some sectors the right skills and 
qualifications  are  missing  such  as  ICT  and 
these 
engineering 
challenges,  the  Government  strategy  launched  in 
2015 
to  promote  "Growth  and 
development in the whole of Denmark" 

capabilities.  Faced  with 

is  designed 

in  Europe 

is  also  an 

The  growing  shortage  of  ICT  professionals 
reported 
issue  for 
Denmark. In particular, the study "e-skills for jobs 
in Europe: measuring progress and moving ahead" 
estimated  that  by  2017  there  will  be  14 000 
unfilled vacancies for ICT professionals, a number 
which is expected to rise towards 19 000 vacancies 
by  2020  (Hüsing  et  al.,  2015).  In  the  spring  of 
2016  the  national  authorities  launched  a  national 
mapping  exercise  of  companies’  need  for  digital 
skills.  A  similar  mapping  exercise  but  at  the 
regional  level  was  performed  by  the  Danish 
Growth  Council  in  December  2016.  So  far,  the 
mapping  has  shown  variations  across  the  five 
regions  in  regards  to  the  demand  for  digital  skills 
which  is  linked  to  the  business  structure  of  the 
region.  Also,  two  previous  mapping  activities 
targeted business needs and research and education 
in  the  field of cybersecurity (28),  and future needs 
for  digital 
the  Danish 
skills.  Moreover, 
government  launched  two  partnerships  promoting 
digitisation 
industries 
involving the Danish Business Authority, industry 
associations and different stakeholders. 

in  specific 

in  SMEs 

(27)  Current Eurostat data are expected to be revised following 
Statistics  Denmark's  revision  of  the  National  Accounts  on 
15 November 2016. 

(28)  Survey of knowledge and training in cyber and information 
security  at  Danish  educational  and  research  institutions 
(2015) 

37 

0,60,81,01,21,41,61,82,02,22000200120022003200420052006200720082009201020112012201320142015R&D expenditure as % of GDPBusiness R&D intensityPublic R&D intensity 
 
                                                           
                                                           
3.5. Sectoral policies 

Denmark is an Innovation Leader according to 
the  European  Innovation  Scoreboard  2016  but 
Community Innovation Survey (CIS) data show 
that  some  indicators  have  worsened.  Though 
performance relative to the EU has increased from 
26 %  above  the  EU  average  in  2008  to  34 %  in 
2015,  CIS 2014 data recently  released  in 2017  by 
Eurostat  points  to  fall  in  performance  for  some 
indicators relative to CIS 2012 results. Notably this 
concerns a decrease in the share of SMEs that are 
product/process 
are 
innovators, 
organisational/marketing innovators, and the share 
of  innovative  SMEs  collaborating.  Additionally, 
the share of innovative enterprises is only slightly 
above the EU-average. 

those 

that 

There  is  a  need  for  stronger  links  between  the 
players  in  the  R&I  system  to  foster  knowledge 
transfer  and  firms'  performance.  An  analysis 
conducted  by  the  Ministry  of  Science  and  Higher 
Education  showed  that  on  average  productivity  is 
15 per cent higher among Danish R&D-performing 
firms  that  cooperate  with  universities  and  public 
research  institutions  than  for  R&D-performing 
firms  that  do  not  engage  in  such  cooperation.(29) 
Public  expenditure  on  R&D  financed  by  business 
as  a  percentage  of  GDP  has  notably  decreased 
from 0.031 % of GDP in 2009 to 0.020 % of GDP 
in  2015,  with  Denmark  ranking  only  20th  within 
the EU (see Graph 3.5.2).  Moreover, as discussed 
in the European Commission's Country Report on 
Denmark  (2016),  obstacles  to  the  utilisation  of 
university  research  include  complexities  in  the 
regulatory 
concerning 
collaboration  efforts  between  universities  and 
businesses, 
sometimes  different  views 
regarding  the  pricing  of  intellectual  property 
rights. 

especially 

system 

and 

The  challenge  of 
incentivising  academia-
business  collaboration  has  also  been  addressed 
by the European Commission's Country Report 
on  Denmark  (2016).  In  order  to  act  on  this 
development,  the  Danish  Government  intends  to 
regard innovation and business collaboration as an 
integral part of research activities which has led to 
a  reorganization  of 
the  Ministry  of  Higher 
Education  and  Science  in  2017.  Importantly, 
DASTI and Universities Denmark will jointly form 
a  working  group  to  create  a  guideline  advising 

(29)  Economic  effects  of  business  collaborative  research  with 

public knowledge institutions (2011). 

the 

universities  on  how  to  legally  engage  in  strategic 
partnerships with industry which involve state aid. 
the  Research  and 
In  parallel, 
role  of 
(RTOs)  will  be 
Technology  Organisations 
strengthened.  The  Innovation  Fund  Denmark 
launched in 2014 will also support investments and 
long-term 
involve 
research,  technology,  demonstration  and  market 
development  activities,  and  also  SMEs  and 
entrepreneurship 
InnoBooster 
through 
program. 

projects/partnerships 

that 

the 

Graph 3.5.2:  Public expenditure on R&D financed by 

business enterprise as % of GDP (1) versus 
BERD intensity (business enterprise expenditure 
on R&D as % of GDP) 

(1)Public expenditure on R&D financed by business 
enterprise does not include financing from abroad. 
(2)BE, LU, AT, SE: 2013; BG, DE, IE, ES, FR, IT, CY, PT, EU: 2014.  
Source: Eurostat 

low 

Relatively 
survival  rates  also  affect 
innovative  companies.  On  average,  the  survival 
rate of the companies in the portfolio of the Danish 
Innovation Incubators is 49 % after 5 years which 
may  reflect  the  fact  that  the  Danish  Innovation 
Incubators  generally  take  on  high  risk (DASTI). 
Hence,  despite  being  the  top  performer  in  the  EU 
according  to  the  World  Bank's  2016  'Ease  of 
Doing Business' Rank, Danish companies seem to 
face some challenges in the post-entry phase to the 
markets. According to the Global Competitiveness 
Index 2016-2017, the 'most problematic issues for 
doing  business'  were  related  to  tax  rates  and 
regulations, to restrictive labour regulations, access 
to 
government 
bureaucracy  (see  also  Section  3.4.2  on  business 
environment).  

inefficient 

financing 

and 

38 

EUBEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISEUK0,000,010,020,030,040,050,060,070,080,090,100,110,120,130,00,51,01,52,02,5Public expenditure on R&D financed by business enterprise as % of GDP, 2015 (2)BERD intensity, 2015 (2) 
                                                           
 
3.5. Sectoral policies 

energy  consumption  which  are  below 
the 
indicative  national  2020  targets  (17.4  Mtoe  in 
primary  energy  consumption  and  14.4  Mtoe  in 
final  energy  consumption)  it  would  need  to  make 
an  effort  to  keep  these  levels  until  2020.  The 
country  has  recently  set  a  more  ambitious  2020 
target for energy efficiency. Denmark remains the 
Member State with the highest implicit tax rate on 
energy. 

Available  electricity  interconnection  capacity 
with  Germany,  notably  on 
the  DK1-DE 
interconnector,  needs  to  be  increased  in  order 
to  facilitate  cross-border  trading.  A  2014 
study(30) estimated that maintaining a minimum of 
1 000  MW  of  cross-border  capacity  could  bring 
economic  benefits  of  around  EUR 40 million  per 
year. Current capacity limitations not only restrict 
cross-border  trading,  but  can  also  result  in  costs 
associated  with  curtailing  generators  in  order  to 
manage the limitation in the network. Furthermore, 
the  current  national  arrangements  for  congestion 
management and bidding zone definition in central 
Europe do not necessarily accurately reflect actual 
congestion,  leading  to  increasing  limitations  on 
cross-border flows of electricity. The issue lacks a 
joint  regional  solution  agreed  by  all  affected 
neighbours. 

is 

In  2016,  Denmark  and  other  North  Sea 
countries agreed on a political declaration. The 
aim 
cost-effective 
deployment  of  offshore  renewable  energy,  in 
particular 
further 
and 
interconnection between North Sea countries (31). 

facilitate 

support 

further 

wind, 

to 

On  gas,  several  infrastructure  projects  aim  to 
address  the  challenge  of  security  of  gas  supply 
caused by expected decreasing production from 
North  Sea  gas  fields.  These  projects  are  the  (i) 
upgrade  of  capacity  at  the  Ellund  interconnection 
point  between  Denmark  and  Germany  (completed 
in  august  2016),  (ii)  the  Project  of  Common 
Interest  (PCI)  Poland-Denmark  interconnection 
"Baltic Pipe" (feasibility study phase), (iii) the Tie-
in  project  connecting  Denmark  and  Norway 
(feasibility  study  phase),  and  (iv)  the  PCI  project 

(30)  Scientific 

study 

both 
Transmission  System  Operators  (TenneT  TSO  GmbH  and 
Energinet.dk) 

commissioned 

jointly 

by 

(31)  Belgium,  Denmark, 

France,  Germany, 

Ireland, 

Luxembourg, the Netherlands, Norway and Sweden. 

3.5.2.  ENVIRONMENT AND ENERGY POLICY 

Denmark  is  almost  on  track  to  meet  its  2020 
greenhouse  gas  reduction  targets.  According  to 
the  latest  national  projections  and  taking  into 
account existing measures, emission in the sectors 
not covered by the EU Emissions Trading System 
will  fall  by  19 %  between  2005  and  2020, 
compared  to  a  target  of  20 %.  Denmark  will 
consequently  need 
implement  additional 
policies to further reduce its emissions, or to make 
use of the flexibility mechanism. 

to 

Denmark is in the process of establishing a new 
broad  political  agreement  on  energy  and 
climate  policy  that  will  set  out  objectives  for 
2030.  This  climate  plan,  due  in  2017,  will  bring 
together  the  government’s  initiatives  on  climate 
change  and  present  cost-effective  strategies  to 
reach  its  2030  goals.  The government  has  already 
announced that it will work towards meeting 50 % 
of  its  energy  needs  using  energy  from  renewable 
sources in 2030. Denmark has set a long-term goal 
to  transition  to  a  low-carbon,  fossil-fuel  free 
society  by  2050.  Denmark’s  national  target  will 
put  it  in  line  with  the  EU-wide  target  for  an  80-
95 % reduction of greenhouse gases by 2050. 

Though Denmark is on track towards reaching 
the  2020  renewable  energy  target,  the  Danish 
energy  mix  is  still  dominated  by  fossil  fuels.  In 
terms of gross inland energy consumption (2014), 
oil accounts for 39 %, renewable energy for 29 %, 
natural  gas  for  17 %,  and  coal  for  14 %.  56 %  of 
gross electricity generation comes from renewable 
energy sources, and 35 % from coal. At 30,6 % in 
2015, Denmark has already reached its 2020 target 
for  the  share  of  renewable  energy  in  final  energy 
consumption  (30  %).  Progress 
the  most 
noticeable  in  electricity  generation  (biomass  and 
wind energy) and in heating (largely biomass). The 
main  way  of  supporting  renewable  energy  in 
Denmark  has  been  through  the  PSO  scheme,  but 
future  support  of  renewable  energy  will  be 
financed from the State budget (see section 3.1). 

is 

Within  the  EU,  Denmark  is  one  of  the  least 
energy-intensive economies. Denmark reduced its 
primary energy consumption by -0.2% from 16.55 
Mtoe in 2014 to 16.51 Mtoe in 2015. Final energy 
consumption increased by 3% from 13.52 Mtoe in 
2014 to 13.94 Mtoe in 2015. Even if Denmark has 
already  achieved  levels  of  primary  and  final 

39 

 
                                                           
3.5. Sectoral policies 

of 30 Mbps upload speeds, next generation access 
(NGA) networks in rural areas is only available to 
59 %  of  households  -  4  percentage  points  higher 
than  last  year.  This  is  well  below  the  national 
figure  of  93 %  but  well  above  the  EU  average  of 
increase  of 
40 %.  There  was  a  significant 
subscriptions 
broadband, 
high-speed 
to 
accompanied  by  an  increase  in  mobile  broadband 
uptake. To promote access to digital opportunities 
also  outside  urban  areas,  the  Danish  government 
has  committed  to  further  enhance network quality 
in  rural  areas.  For  this  reason,  Denmark  will 
(approximately 
allocate 
EUR 27 million) of public funds between 2016 and 
2019. 

DKK 200 million 

In  the  area  of  digital  skills,  an  investment  of 
(approximately 
DKK 500 Million 
EUR 67 million)  have  been  allocated 
in  a 
National  Investment  plan  for  ICT  and  Digital 
Skills.  This  is  a  5-year-project  launched  in  2012 
with  a  focus  in  four  particular  areas,  namely  (a) 
develop  the  market  for  digital  learning  resources; 
(b)  gain  more  knowledge  on  ICT-based  learning; 
(c)  ensure  efficient  infrastructure  in  schools  and 
support  the  use  of  ICT  and  digital  learning 
resources 
(d) 
collaboration  and  knowledge  sharing  between 
teachers (see also Section 3.3.2).  

networking 

through 

and 

The  adoption  of  digital  technologies  is  an 
important driver of labour productivity growth. 
Danish  businesses  do  exploit  the  benefits  and 
possibilities  offered  by  digital  technologies  with 
27 %  of  SMEs  selling  online  and  18 %  of  their 
turnover coming from this type of commerce. As a 
matter of fact, almost half of all Danish enterprises 
(47 %)  -  and  45 %  for  SMEs  -  have  an  electronic 
information sharing system.  

In  Denmark,  adoption  rates  of  eBusiness 
technologies,  like  eInvoices  and  Cloud  services 
are  one  of  the  highest  in  the  EU.  The  Danish 
government  launched  two  partnerships  promoting 
digitisation in SMEs in specific industries (section 
3.5.1.).  

Gothenburg  LNG  Terminal,  which  will  decrease 
gas quantities dedicated to exports to Sweden. 

3.5.3.  TRANSPORT INFRASTRUCTURE  

such  as 

infrastructure 

flagship  projects 

Large  scale  infrastructure  projects  support 
growth  in  the  Danish  construction  sector  and 
are  expected  to  continue  in  the  coming  years. 
Investment  in  infrastructure  grew  from  0.5 %  of 
GDP to 0.9 % of GDP between 2008 and 2014. A 
number  of 
the 
Copenhagen  metro  and  the  Fehmarn  Belt  Tunnel, 
as well as already build and planned investments in 
transport 
of  DKK 100 billion 
(EUR 13.5 billion) are underpinning growth in the 
funds  worth 
civil  engineering 
EUR 658.7 million  have  also  been  earmarked  for 
transport  (INEA).  According  to  the  EU  Transport 
Scoreboard,  the  Danish  public  is  among  the  most 
satisfied  in  the  EU  as  regards  the  quality  of 
transport 
is 
becoming  more  satisfied  over  time.  This  does  not 
apply  to  the  quality  of  port  infrastructures,  where 
there has been a declining satisfaction trend. 

in  Denmark,  and 

infrastructure 

sector.  EU 

is 

in 
investment  needs  persist 
Nevertheless, 
infrastructure.  Like  many  other 
transport 
faced  with 
Member  States,  Denmark 
considerable  investment  needs  in  its  transport 
infrastructure,  stemming  both  from  projected 
growth  of  freight  and  passenger  transports  that  is 
higher  than  growth  of  the  overall  economy,  and 
from  a  need  to  meet  higher  climate,  security  and 
performance  requirements,  as  well  as  higher 
expectations  from  consumers.  The  pressure  is 
particularly  high  on  the  transport  systems  in  and 
around  greater  Copenhagen.  To  ensure  proper 
funding and coordination of investment projects, a 
multimodal,  rolling  investment  programme  for 
land  transport  until  2020  was  put  in  place  by  the 
government  in  2009,  combined  with  a  dedicated 
Infrastructure Fund to secure financing. 

3.5.4.  DIGITISATION  

Denmark  has  maintained  its  high  coverage  of 
fixed      broadband  and  next  generation  access 
networks, available to 99 % and 93 % of homes, 
respectively.  Despite  improvements  in  upload 
capacity,  in  line  with  the  aim  of  the  Danish 
Government action plan to ensure 100 % coverage 

40 

 
 
ANNEX A 

Overview table 

Commitments  

Summary assessment(32) 

2016 Country-Specific Recommendations (CSRs) 

CSR 1:   

Respect 
the  medium-term  budgetary 
objective  in  2016  and  achieve  an  annual 
fiscal  adjustment  of  0.25 %  of  GDP 
towards 
the  medium-term  budgetary 
objective in 2017. 

CSRs  related  to  the  compliance  with  the  Stability  and 
Growth Pact will be assessed in spring once the final data 
will be available. 

CSR 2:  

Denmark has made some progress in addressing CSR 2 

Enhance  productivity  and  private  sector 
investment  by  increasing  competition  in 
the  domestic  services  sector,  in  particular 
retail  and  construction  and  to  incentivise 
the  cooperation  between  businesses  and 
universities. 

Enhance  productivity  and  private  sector 
investment  by  increasing  competition  in 
the  domestic  services  sector,  in  particular 
retail and construction … 

…  and  to  incentivise  the  cooperation 
between businesses and universities 

Some progress has been made in enhancing productivity 
and  private  sector  investment.  On  facilitating  market 
access in retail: in January 2017 the government presented 
a  proposal  to  the  Parliament  to  amend  the  Planning  Act. 
However, since this proposal has not yet been adopted, the 
assessment  is  limited  progress.  There  was  some  progress 
on facilitating market access in construction, following the 
mapping of standards in 2015, the updating of the law on 
electrical 
the  proposed 
amendments  to  the  Building  Regulation  to  simplify 
procedures. 

in  2015,  and 

installations 

Some  progress  has  been  made  on 
incentivising 
cooperation between businesses and universities: There is 
some initiative from the national authorities to strengthen 
the  links  between  universities  and  the  private  sector 
through  dialogues  involving  both  parties,  new  guidelines 
and  specific  programmes  that  stimulate  collaboration. 

(32)  The following categories are used to assess progress in implementing the 2016 country-specific recommendations: 
No progress: The Member State has not credibly announced nor adopted any measures to address the CSR. Below a number of non-
exhaustive  typical  situations    that  could  be  covered  under  this,  to  be  interpreted  on  a  case  by  case  basis  taking  into  account 
country-specific conditions: 

•   no legal, administrative, or budgetary  measures have been announced in the National Reform  Programme or in other official 
communication  to  the  national  Parliament  /  relevant  parliamentary  committees,  the  European  Commission,  or  announced  in 
public (e.g. in a press statement, information on government's website);  

•   no non-legislative acts have been presented by the governing or legislator body;   
•  

the Member State has taken initial steps in addressing the CSR, such as commissioning a study or setting up a study group to 
analyse possible measures that would need to be taken (unless the CSR explicitly asks for orientations or exploratory actions), 
while clearly-specified measure(s) to address the CSR has not been proposed. 

announced certain measures  but these only address the CSR to a limited extent;    

Limited progress: The Member State has: 
•  
and/or 
•   presented legislative acts in the governing or legislator body but these have not been adopted yet and substantial non-legislative 

further work is needed before the CSR will be implemented;  

•   presented non-legislative acts, yet with no further follow-up in terms of implementation which is needed to address the CSR. 
Some progress: The Member State has adopted measures that partly address the CSR  
and/or  
the Member State has adopted measures that address the CSR, but a fair amount of work is still needed to fully address the CSR as 
only  a  few  of  the  adopted  measures  have  been  implemented.  For  instance:  adopted  by  national  parliament;  by  ministerial 
decision; but no implementing decisions are in place. 

Substantial progress: The Member State has adopted measures that go a long way in addressing the CSR and most of which have 

been implemented. 

Full implementation: The Member State has implemented all measures needed to address the CSR appropriately. 

41 

 
                                                           
A. Overview table 

These  include  notably  the  efforts  of  the  Danish  Agency 
for  Science  and  Technology  together  with  Universities 
Denmark, a more prominent role given to the research and 
technology  organisations,  and  the  new  Innovation  Fund 
the  ambition  of  supporting 
Denmark  created  with 
investments  and 
that 
involve  research,  technology,  demonstration  and  market 
development activities. Moreover, the Ministry of Higher 
Education  and  Science  in  June  2016  renegotiated  the 
university  performance  contracts  for  2015-2017  which 
introduced  an  additional  performance  targets  on  regional 
knowledge transfer activities. 

long-term  projects/partnerships 

Europe 2020 (national targets and progress) 

Employment  rate  target  set  in  the  2013 
NRP: 80 % 

76.5 % (2015) 

The  employment  rate  has  increased  moderately,  from 
75.6 %  in  2013  to  76.5 %  in  2015.  It  remains,  however, 
below  pre-crisis  levels  (79.7 %  in  2008).  In  recent  years, 
Denmark  has  adopted  a  series  of  active  labour  market 
reforms with the purpose of promoting incentives to work. 
These  policy  measures  aim  to  close  the  3.5  pps.  gap  to 
Denmark’s Europe 2020 employment rate target of 80 %. 

R&D target: 3 % 

3.03 % (2015) 

The  3 %  target  has  been  reached  and  even  surpassed. 
Denmark’s  R&D  intensity  has  shown  a  positive  trend, 
from  2.51 %  in  2007  to  3.03 %  in  2015.  Public  R&D 
intensity  has  steadily  increased  between  2007  and  2013, 
stabilising  in  2015  at  above  1 %  of  GDP  (1.14 %). 
Denmark  is  therefore  the  EU  Member  State  that  invests 
the  most  in  R&D.  Business  R&D  intensity  has  stabilised 
at around 2.0 % of GDP since 2010.   

National Greenhouse gas (GHG) emissions 
target:  

2020 target: -20 % 

-20 %  in  2020  compared  to  2005  (in  non-
ETS sectors)  

According to the latest national projections and taking into 
account  existing  measures,  emission  in  the  sectors  not 
covered by the EU Emissions Trading System will fall by 
19,2 %  between  2005  and  2020,  compared  to  a  target  of 
20 %.  Denmark  will  consequently  need  to  implement 
additional policies to further reduce its emissions or make 
use of flexibility mechanism.  

 Non-ETS 2015 target: -8 %.  

Based  on  proxy  data,  the  non-ETS  greenhouse  gas 
emissions between 2005 and 2015 decreased by 15 %; this 
is  7  pps.  below  the  2015  target  set  by  the  Effort Sharing 

42 

 
 
A. Overview table 

Renewable energy target: 30 % 

30.6 % (2015)(33) 

Decision.  

With a 30.6 % share of renewable energy in final energy 
consumption  in  2015,  Denmark  is  likely  to  have  met  its 
2020  target  of  30 %.  Progress  is  most  noticeable  in 
electricity  generation  (biomass  and  wind  energy)  and  in 
heating (largely biomass).  

Energy efficiency target. 

16.7 Mtoe (2014) 

Denmark’s 2020 energy efficiency target is 
17.8  Mtoe  expressed  in  primary  energy 
consumption (14.8 Mtoe expressed in final 
energy consumption.)  

Denmark  reduced  its  primary  energy  consumption  by  -
0.2 %  from  16.55  Mtoe  in  2014  to  16.51  Mtoe  in  2015. 
Final  energy  consumption  increased  by  3 %  from  13.52 
Mtoe  in  2013  to  13.94  Mtoe  in  2014.  Even  if  Denmark 
has  already  achieved  levels  of  primary  and  final  energy 
consumption which are below the indicative national 2020 
targets  (17.8  Mtoe  in  primary  energy  consumption  and 
14.8 Mtoe in final energy consumption) it would need to 
make an effort to keep these levels until 2020. 

Early school leaving target: <10 % 

7.8 % (2015) 

(Less  than  10 %  school  drop-out  rates  of 
the population aged 18-24) 

The  <10 %  target  has  been  reached  and  even  surpassed. 
The school drop-out rate of the population aged 18-24 has 
been improving since 2008 when the rate was 12.5 % and 
stood at 7.8 % in 2015. 

Tertiary education target: >40 % 

47.6 % (2015) 

(At  least  40 %  of  the  population  aged  30-
34 having completed tertiary education) 

Target  on  the  reduction  of  population  at 
risk  of  poverty  or  social  exclusion  in 
number  of  persons:  reduce  the  number  of 
people 
low  work 
intensity by 22 000 towards 2020.  

in  households  with 

The  >40 %  target  has  been  reached  and  even  surpassed. 
The  share  of  the  population  aged  30-34  which  has 
successfully completed tertiary studies has increased from 
39.2 % in 2008 to 47.6 % in 2015. 

From  2008  to  2015  the  number  of  people  living  in  low 
work  intensity  households  increased  by  35 %  (from 
347 000 to 470 000), and the national Europe 2020 target 
in  the  area  of  poverty  and  social  exclusion  is  far  from 
being  reached.  This  underlines  the  importance  of  better 
inclusion  of  people  on  the  furthest  margins  of  the  labour 
market  in  order  to  prevent  long‒term  consequences  for 
social inclusion and cohesion. To address this, the Danish 
government has introduced a strategy to progress towards 
its ten goals on social mobility, which are designed to give 
direction and greater emphasis to social policy. 

(33)  Renewable energy shares for 2015 are approximations and not official data, reflecting the available data (04.10.2016). See the 
the  2016  Report  on  Renewable 

in  Realisation  of 

Öko-Institut  Report:  Study  on  Technical  Assistance 
Energy:  http://ec.europa.eu/energy/en/studies. 

43 

 
 
 
 
                                                           
ANNEX B 

MIP Scoreboard 

Table B.1: 

The MIP Scoreboard for Denmark 

Flags: i: see metadata. na: not available.           
(1) Unemployment rate: for 2006 i = Eurostat back-calculation to include 2011 Population Census results.  
(2) Youth unemployment rate: for 2006 i = Eurostat back-calculation to include 2011 Population Census results. 
Source: European Commission, Eurostat and Directorate-General for Economic and Financial Affairs (for real effective 
exchange rate), and International Monetary Fund 

44 

Thresholds201020112012201320142015Current account balance, (% of GDP) 3 year average-4%/6%4,35,66,56,97,78,8-35%12,928,036,337,852,539,0Real effective exchange rate - 42 trading partners, HICP deflator3 years % change±5% & ±11% 0,2-2,5-7,8-2,6-1,2-1,5Export market share - % of world exports5 years % change-6%-10,3-13,4-17,1-17,2-15,7-8,8Nominal unit labour cost index (2010=100)3 years % change9% & 12% 10,34,40,62,94,14,96%0,3-4,0-5,03,13,06,314%-2,94,58,0-4,2-0,2-3,3133%222,1222,6225,5218,5218,8212,860%42,946,445,244,744,840,4Unemployment rate3 year average10%5,67,07,57,47,06,616.5%9,71,62,51,86,8-2,0-0.2%-0,7-1,4-1,6-1,3-1,2-0,10.5%0,91,31,50,3-0,1-0,42%6,46,22,3-0,9-1,6-3,3Activity rate - % of total population aged 15-64 (3 years change in p.p)Long-term unemployment rate - % of active population aged 15-74 (3 years change in p.p)Youth unemployment rate - % of active population aged 15-24 (3 years change in p.p)External imbalances and competitivenessNew employment indicatorsNet international investment position (% of GDP)Deflated house prices (% y-o-y change)Total financial sector liabilities (% y-o-y change)Private sector credit flow as % of GDP, consolidatedPrivate sector debt as % of GDP, consolidatedGeneral government sector debt as % of GDPInternal imbalances 
 
 
 
 
ANNEX C 

Standard tables 

Table C.1: 

Financial market indicators 

(1) Latest data Q2 2016 
(2) Quarterly values are not annualised 
* Measured in basis points. 

Source: European Commission (long-term interest rates); World Bank (gross external debt); Eurostat (private debt); ECB (all 
other indicators) 

45 

201120122013201420152016Total assets of the banking sector (% of GDP)465,3457,7410,1415,4385,0385,4Share of assets of the five largest banks (% of total assets)66,365,668,468,167,8-Foreign ownership of banking system (% of total assets)15,016,619,24,54,1-Financial soundness indicators:1)              - non-performing loans (% of total loans)3,03,93,95,14,03,6              - capital adequacy ratio (%)16,918,719,218,219,820,2              - return on equity (%)2)0,62,04,44,76,84,5Bank loans to the private sector (year-on-year % change)-1,3-0,40,60,21,00,9Lending for house purchase (year-on-year % change)1,91,2-0,80,41,11,1Loan to deposit ratio306,2295,4292,4280,5277,3267,3Central Bank liquidity as % of liabilities0,91,40,91,00,70,6Private debt (% of GDP)221,0224,0215,6215,0208,4-Gross external debt (% of GDP)1) - public20,620,017,518,115,415,2    - private42,941,637,138,939,341,2Long-term interest rate spread versus Bund (basis points)*12,2-9,217,616,319,523,9Credit default swap spreads for sovereign securities (5-year)*63,780,017,616,012,715,5 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
C. Standard tables 

Table C.2: 

Labour market and social indicators 

(1) Unemployed persons are all those who were not employed but had actively sought work and were ready to begin 
working immediately or within two weeks.       
(2) Long-term unemployed are those who have been unemployed for at least 12 months.       
(3) Not in education employment or training.       
(4) Average of first three quarters of 2016. Data for total unemployment and youth unemployment rates are seasonally 
adjusted.       

Source: European Commission (EU Labour Force Survey) 

46 

201120122013201420152016 4Employment rate(% of population aged 20-64)75,775,475,675,976,577,5Employment growth (% change from previous year)0,0-0,70,01,01,31,7Employment rate of women(% of female population aged 20-64)72,472,272,472,272,674,2Employment rate of men (% of male population aged 20-64)79,078,678,779,580,280,8Employment rate of older workers (% of population aged 55-64)59,560,861,763,264,767,5Part-time employment (% of total employment, aged 15-64)25,124,824,724,624,726,4Fixed-term employment (% of employees with a fixed term contract, aged 15-64)8,98,68,88,68,713,7Transitions from temporary to permanent employment:24,028,044,545,1:Unemployment rate1 (% active population, age group 15-74)7,67,57,06,66,26,1Long-term unemployment rate2 (% of labour force)1,82,11,81,71,71,4Youth unemployment rate (% active population aged 15-24)14,214,113,012,610,811,7Youth NEET3 rate (% of population aged 15-24)6,36,66,05,86,2:Early leavers from education and training (% of pop. aged 18-24 with at most lower sec. educ. and not in further education or training)9,69,18,07,87,8:Tertiary educational attainment (% of population aged 30-34 having successfully completed tertiary education)41,243,043,444,947,6:Formal childcare (30 hours or over; % of population aged less than 3 years)69,059,063,064,0:: 
 
 
 
 
 
 
 
 
 
 
 
 
C. Standard tables 

Table C.3: 

Expenditure on social protection benefits and social inclusion indicators 

(1) People at risk of poverty or social exclusion : individuals who are at risk of poverty and/or suffering from severe material 
deprivation and/or living in households with zero or very low work intensity.       
(2) At-risk-of-poverty rate : proportion of people with an equivalised disposable income below 60 % of the national 
equivalised median income.        
(3) Proportion of people who experience at least four of the following forms of deprivation: not being able to afford to i) pay 
their rent or utility bills, ii) keep their home adequately warm, iii) face unexpected expenses, iv) eat meat, fish or a protein 
equivalent every second day, v) enjoy a week of holiday away from home once a year, vi) have a car, vii) have a washing 
machine, viii) have a colour TV, or ix) have a telephone.       
(4) People living in households with very low work intensity: proportion of people aged 0-59 living in households where the 
adults (excluding dependent children) worked less than 20 % of their total work-time potential in the previous 12 months.       
(5) For EE, CY, MT, SI and SK, thresholds in nominal values in euros; harmonised index of consumer prices = 100 in 2006 (2007 
survey refers to 2006 incomes)       

Source: For expenditure for social protection benefits ESSPROS; for social inclusion EU-SILC. 

47 

Expenditure on social protection benefits (% of GDP)201020112012201320142015Sickness/healthcare6,76,66,66,56,4:Disability4,34,14,24,24,1:Old age and survivors12,712,812,713,514,3:Family/children4,13,93,73,73,6:Unemployment2,01,91,91,91,7:Housing0,70,70,70,70,7:Social exclusion n.e.c.1,21,21,21,31,4:Total31,631,231,131,732,2:of which: means-tested benefits10,711,011,111,411,5:Social inclusion indicators201020112012201320142015People at risk of poverty or social exclusion1 (% of total population)18,317,617,518,317,917,7Children at risk of poverty or social exclusion  (% of people aged 0-17)15,115,714,915,414,515,7At-risk-of-poverty  rate2 (% of total population)13,312,112,011,912,112,2Severe material deprivation rate3  (% of total population)2,72,32,73,63,23,7Proportion of people living in low work intensity households4 (% of people aged 0-59)10,610,510,211,912,211,6In-work at-risk-of-poverty rate (% of persons employed)6,56,35,25,54,95,5Impact of social transfers (excluding pensions) on reducing poverty54,356,656,257,255,052,7Poverty thresholds, expressed in national currency at constant prices5107703110674108815107205108491109962Gross disposable income (households; growth %)5,83,42,11,92,23,6Inequality of income distribution (S80/S20 income quintile share ratio)4,44,03,94,04,14,1GINI coefficient before taxes and transfers48,950,950,649,951,450,7GINI coefficient after taxes and transfers26,927,828,126,827,727,4 
 
 
 
 
 
 
 
 
 
 
 
C. Standard tables 

Table C.4: 

Product market performance and policy indicators 

1 The methodologies, including the assumptions, for this indicator are shown in detail at: 
http://www.doingbusiness.org/methodology.        
2 Average of the answer to question Q7B_a. "[Bank loan]: If you applied and tried to negotiate for this type of financing over 
the past six months, what was the outcome?". Answers were codified as follows: zero if received everything, one if received 
most of it, two if only received a limited part of it, three if refused or rejected and treated as missing values if the application is 
still pending or if the outcome is not known.       
3 Percentage population aged 15-64 having completed tertiary education.       
4 Percentage population aged 20-24 having attained at least upper secondary education.       
5 Index: 0 = not regulated; 6 = most regulated. The methodologies of the OECD product market regulation indicators are 
shown in detail at: http://www.oecd.org/competition/reform/indicatorsofproductmarketregulationhomepage.htm       
6 Aggregate OECD indicators of regulation in energy, transport and communications. 
Source: European Commission; World Bank — Doing Business (for enforcing contracts and time to start a business); OECD (for 
the product market regulation indicators); SAFE (for outcome of SMEs' applications for bank loans). 

48 

Performance indicators201020112012201320142015Labour productivity (real, per person employed, year-on-year % change)Labour productivity in industry10,630,423,530,82-1,580,11Labour productivity in construction-5,351,104,163,762,050,16Labour productivity in market services3,86-0,260,842,502,59-0,47Unit labour costs (ULC) (whole economy, year-on-year % change)ULC in industry-7,150,08-0,891,143,942,08ULC in construction6,24-0,64-1,48-3,03-0,661,93ULC in market services-1,310,611,73-1,75-0,102,08Business environment201020112012201320142015Time needed to enforce contracts1 (days)410.0410.0410.0410.0380.0380.0Time needed to start a business1 (days)5,55,55,55,55,53,0Outcome of applications by SMEs for bank loans2na0,78na0,700,440,98Research and innovation201020112012201320142015R&D intensity2,942,973,003,013,023,03Total public expenditure on education as % of GDP, for all levels of education combined8,818,75nanananaNumber of science & technology people employed as % of total employment464647484848Population having completed tertiary education3282829293031Young people with upper secondary education4697072727374Trade balance of high technology products as % of GDP-0,18-0,04-0,30-0,13-0,040,17Product and service markets and competition200320082013OECD product market regulation (PMR)5, overallna1,351,22OECD PMR5, retail3,001,831,69OECD PMR5, professional services0,870,780,82OECD PMR5, network industries62,051,701,61 
 
 
 
 
 
 
 
C. Standard tables 

Table C.5:  Green growth 

All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2005 prices)        
          Energy intensity: gross inland energy consumption (in kgoe) divided by GDP (in EUR)        
          Carbon intensity: greenhouse gas emissions (in kg CO2 equivalents) divided by GDP (in EUR)        
          Resource intensity: domestic material consumption (in kg) divided by GDP (in EUR)        
          Waste intensity: waste (in kg) divided by GDP (in EUR)        
Energy balance of trade: the balance of energy exports and imports, expressed as % of GDP          
Weighting of energy in HICP: the proportion of 'energy' items in the consumption basket used for the construction of the HICP        
Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual % 
change)        
Real unit energy cost: real energy costs as a percentage of total value added for the economy        
Environmental taxes over labour taxes and GDP: from European Commission's database, ‘Taxation trends in the European 
Union’        
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2005 EUR)         
Real unit energy costs for manufacturing industry excluding refining : real costs as a percentage of value added for  
manufacturing sectors        
Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP        
Electricity and gas prices for medium-sized industrial users: consumption band 500–20 00MWh and 10 000–100 000 GJ; figures 
excl. VAT.        
Recycling rate of municipal waste: ratio of recycled and composted municipal waste to total municipal waste        
Public R&D for energy or for the environment: government spending on R&D for these categories as % of GDP        
Proportion of GHG emissions covered by EU Emissions Trading System (ETS) (excluding aviation): based on greenhouse gas 
emissions        
(excl land use, land use change and forestry) as reported by Member States to the European Environment Agency.        
Transport energy intensity: final energy consumption of transport activity (kgoe) divided by transport industry gross value 
added (in 2005 EUR)        
Transport carbon intensity: GHG emissions in transport activity divided by gross value added of the transport sector        
Energy import dependency: net energy imports divided by gross inland energy consumption incl. consumption of 
international bunker fuels        
Aggregated supplier concentration index:  covers oil, gas and coal. Smaller values indicate larger diversification and hence 
lower risk.        
Diversification of the energy mix: Herfindahl index over natural gas, total petrol products, nuclear heat, renewable energies 
and solid fuels        
* European Commission and European Environment Agency              
Source: European Commission (Eurostat) unless indicated otherwise 

49 

Green growth performance201020112012201320142015MacroeconomicEnergy intensity kgoe / €0,080,080,070,070,070,07Carbon intensity kg / €0,290,270,240,250,23-Resource intensity (reciprocal of resource productivity)kg / €0,500,570,560,510,510,48Waste intensity kg / €0,08-0,07-0,09-Energy balance of trade % GDP0,90,70,50,10,0-Weighting of energy in HICP%10,6811,4611,4110,3110,5611,32Difference between energy price change and inflation %5,14,5-0,70,80,7-5,9Real unit of energy cost% of value added9,310,410,710,310,1-Ratio of environmental taxes to labour taxesratio0,180,180,170,170,16-Environmental taxes% GDP4,04,14,04,24,1-Sectoral Industry energy intensity kgoe / € 0,070,070,060,060,060,06Real unit energy cost for manufacturing industry excl. refining% of value added6,67,16,86,56,0-Share of energy-intensive industries in the economy% GDP10,4210,1710,8010,2810,059,97Electricity prices for medium-sized industrial users€ / kWh0,100,100,100,100,100,09Gas prices for medium-sized industrial users€ / kWh0,040,040,040,040,040,04Public R&D for energy % GDP0,060,060,050,050,040,03Public R&D for environmental protection% GDP0,020,020,020,020,020,02Municipal waste recycling rate%-41,542,143,245,146,3Share of GHG emissions covered by ETS*%39,836,934,139,136,032,7Transport energy intensitykgoe / €0,500,470,440,390,410,41Transport carbon intensitykg / €1,271,161,100,981,00-Security of energy supplyEnergy import dependency%-15,7-5,6-2,612,212,213,1Aggregated supplier concentration indexHHI2,59,25,25,88,0-Diversification of energy mixHHI0,270,260,260,260,27- 
 
 
 
 
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