COMMISSION STAFF WORKING DOCUMENT Country Report Denmark 2018 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2018 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
Date: 2018-03-07
Institutions: European Commission, Secretariat-General
Subjects: Denmark, economic situation, education, investment, labour market, macroeconomics, public finance, social policy, structural adjustment, tax system

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 7.3.2018 SWD(2018) 203 final  COMMISSION STAFF WORKING DOCUMENT Country Report Denmark 2018 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2018 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(2018) 120 final}   
 
 
CONTENTS 

Executive summary 

1.  Economic situation and outlook 

2.  Progress with country-specific recommendations 

3.  Reform priorities 

3.1.  Public finances and taxation 

3.2.  Financial sector 

3.3.  Labour market, education and social policies 

3.4.   Investment 

3.5.   Sectoral policies 

Annex A Overview table 

Annex B Macroeconomic Imbalances Procedure Scoreboard 

Annex C Standard tables 

References 

LIST OF TABLES 

Table 1.1: 

Key economic, financial and social indicators 

Table 2.1: 

CSR progress 

Table 3.2.1:  Change in the composition of mortgage loan stock to households 2013-2016 

Table 3.2.2: 

Financial soundness indicators 

Table B.1: 

The MIP scoreboard for Denmark (AMR 2018) 

Table C.1: 

Financial market indicators 

Table C.2: 

Headline Social Scoreboard indicators 

Table C.3: 

Labour market and education indicators 

Table C.4: 

Social inclusion and health indicators 

Table C.5: 

Product market performance and policy indicators 

Table C.6: 

Green growth 

LIST OF GRAPHS 

Graph 1.1:  GDP growth and contributions 

1 

4 

11 

15 

15 

18 

25 

33 

38 

42 

45 

46 

52 

10 

12 

22 

23 

45 

46 

47 

48 

49 

50 

51 

4 

 
 
 
 
 
Graph 1.2: 

Private consumption and investment developments 

Graph 1.3: 

Potential growth 

Graph 1.4: 

Productivity growth 

Graph 1.5: 

Employment and unemployment 

Graph 1.6: 

Consumer price inflation 

Graph 1.7: 

Export market share breakdown 

Graph 1.8: 

Sectoral contributions to the current account 

Graph 1.9: 

Labour costs, manufacturing 

Graph 1.10:  Gross public debt and interest burden 

Graph 2.1: 

Level of implementation today of 2011-2017 CSRs 

Graph 3.1.1:  Pension yield tax revenue 

Graph 3.1.2:  Life expectancy projections 

Graph 3.2.1:  Residential investment and housing Q ratio 

Graph 3.2.2:  Regional housing prices 

Graph 3.2.3:  Overvaluation gap with respect to price/income, price/rent and fundamental model-

based valuation gaps 

Graph 3.2.4:  Price to income ratio for owner-occupied apartments 

Graph 3.2.5:  Household debt 

Graph 3.2.6:  Fundamentals-based and prudential benchmarks for households 

Graph 3.2.7:  New mortgage loans with loan-to-income ratio above four 

Graph 3.2.8:  Credit growth 

Graph 3.2.9:  Business financing sources 

Graph 3.3.1:  Companies reporting shortage of labour 

Graph 3.3.2:  Employment and unemployment, by country of birth 

Graph 3.3.3:  Pisa performance by immigrant status: underachievement in science 

Graph 3.4.1:  Net international investment position by sector 

Graph 3.4.2:  Current account balance 

Graph 3.4.3:  Current account balance — current, cyclically adjusted and norm 

Graph 3.4.4: 

Investment by sector 

Graph 3.4.5:  Sectoral savings 

Graph 3.4.6:  Pension contributions and accumulated savings 

Graph 3.5.1:  Employment in fast-growing firms in innovative sectors 

Graph 3.5.2:  Revenue from environmental taxes 

Graph 3.5.3:  Electricity consumer prices, 2016 

LIST OF BOXES 

Box 2.1: Tangible results delivered through EU support for structural change in Denmark 

Box 3.3.1:  Monitoring performance in light of the European Pillar of Social Rights 

Box 3.3.2: Policy highlights : Life-long learning 

Box 3.4.1: Investment challenges and reforms in Denmark 

4 

5 

5 

6 

6 

7 

7 

8 

9 

11 

15 

17 

18 

19 

19 

20 

20 

21 

22 

23 

24 

25 

27 

30 

33 

33 

34 

34 

35 

35 

38 

39 

41 

14 

26 

32 

37 

 
 
 
 
EXECUTIVE SUMMARY 

Denmark’s ongoing recovery offers a window of 
opportunity  to  ensure  sustainable  economic 
growth. In the current environment where capacity 
constraints  are  becoming  increasingly  binding, 
boosting 
investment,  productivity  growth  and 
labour supply remain key challenges. Although the 
government has adopted several measures in recent 
years,  further  initiatives  are  needed  to  meet  the 
targets  set  in  its  announced  2025  reform  agenda. 
Risks  are building  up  in  the  housing  market  amid 
emerging  signs  of  housing  price  overvaluation. 
Reinforcing macroprudential policies and lowering 
the  vulnerabilities  associated  with  high  household 
debt would bolster the financial system and reduce 
potential  negative  spill-overs 
the  broader 
economy.  (1)  

to 

The Danish economy is expected to have grown 
in 2017 at its fastest pace in a decade, with real 
GDP expanding by 2.1 %. Danish GDP returned 
to its pre-crisis level in 2014 and the economy has 
since  gathered  further  strength.  Consumer  price 
inflation  remains  low,  but  has  picked  up  mainly 
due  to  moderate  increases  in  energy  and  core 
inflation.  Employment  growth  has  been  robust 
since  2012,  particularly  in  services  sectors,  lifting 
the employment rate to pre-crisis levels (77.4 % in 
2016) 
reducing  unemployment.  After 
stabilisation  in  2016,  unemployment  fell  to  5.8 % 
in 2017.   

and 

Investment has gradually risen to levels close to 
its long-term average as a share of GDP. Public 
investment supported economic activity during the 
crisis, increasing significantly from 3 % of GDP in 
2008  to  around  4 %  in  2012.  Since  then,  it  has 
remained  broadly  stable.  Corporate  investment 
increased  particularly  between  2010  and  2014, 
driven mainly by larger firms, while investment by 
smaller  companies  remained  subdued.  In  recent 
years, residential investment has become the main 
driver  of  investment  growth,  boosted  by  rapidly 
increasing housing prices. 

(1)  This report assesses Denmark’s economy in the light of the 
European Commission’s Annual Growth Survey published 
on 22 November 2017. In the survey, the Commission calls 
on  EU  Member  States  to  implement  reforms  to  make  the 
European  economy  more  productive, 
resilient  and 
inclusive.  In  so  doing,  Member  States  should  focus  their 
efforts  on  the  three  elements  of  the  virtuous  triangle  of 
economic  policy  —  boosting 
investment,  pursuing 
structural reforms and ensuring responsible fiscal policies. 

1 

At  an  expected  8.4 %  of  GDP  in  2017,  the 
current  account  surplus  has  receded  slightly 
from its peak of 9.5 % at the beginning of 2015. 
Greater  participation  in  global  value  chains  and 
higher  investment  abroad  have  boosted  Danish 
companies’  export  performance,  despite  some 
losses of export market share in recent years. The 
trade balance is expected to have reached 7.2 % of 
GDP,  boosted  by  merchanting  and  goods 
processed  and  sold  abroad.  The  net  international 
investment  position  of  53 %  of  GDP  continues  to 
generate sizeable income flows.  

GDP  growth  is  projected  to  remain  solid, 
broad-based  and  above  potential  growth 
estimates.  Private  consumption,  investment  and 
exports  are  expected  to  remain  the  key  drivers  of 
economic growth. As a result, employment should 
increase further, although emerging skill shortages 
in specific sectors might hold back growth. Robust 
export growth is projected to limit losses of export 
market  shares  and  support  a  high  current  account 
surplus.  

The  headline  fiscal  balance  is  expected  to 
remain  broadly  constant  at  -1 %  of  GDP  in 
2018 and 2019. It is weighed down by temporary 
transfers  to  households,  including  reforms  of  the 
voluntary early retirement scheme in 2018 and the 
repayment  of  the  overcharged  property  taxes  in 
2019.  Primary  surpluses,  combined  with  solid 
GDP growth have put public debt on a downward 
trajectory.  

In its medium term plan Growth and Prosperity 
2025,  the  three-party  minority  government  has 
set  out  a  reform  programme  for  the  coming 
years  (Ministry  of  Finance,  2017d).  Since  its 
formation in November 2016, the government has 
launched 
labour  supply, 
improve  the  business  environment  and  increase 
productivity.  The  2025  plan  sets  out  reforms 
targeting  a  4 %  medium-term  increase  in  GDP. 
Reforms  adopted  to  safeguard  financial  stability 
include  amortisation  requirements  for  highly 
indebted households. 

initiatives 

to  boost 

the 

2017 

limited  progress 

in 
Denmark  has  made 
addressing 
country-specific 
recommendation. At a sector-specific level, some 
progress was made on easing restrictions for retail 
establishment and on increasing competition in the 
transport and construction sectors. However, none 

 
 
                                                           
or limited progress was made in other domestically 
oriented  services  sectors  where  competition 
remains  weak,  leading  to  limited  progress  in 
country-specific 
addressing 
recommendation. 

2017 

the 

towards 

them.  This  applies 

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

Denmark performs well on the indicators of the 
Social  Scoreboard  supporting  the  European 
Pillar  of  Social  Rights.  Employments  rates  are 
high  and  increasing  social  protection  schemes  are 
advanced. These developments reflect its advanced 
welfare  model,  including  effective  active  labour 
market  policies,  strong  social  dialogue  and  a 
dynamic labour market. 

Key structural issues analysed in this report, which 
point 
to  particular  challenges  for  Denmark's 
economy, are the following: 

  While  productivity  in  the  Danish  economy 
remains  among  the  highest  in  the  EU, 
productivity  growth  has  been  falling  for 
decades,  similarly  to  other  EU  Member 
States. In its first report in December 2017, the 
Productivity Board pointed to a broad range of 
possible  impediments  to  productivity  growth. 
in 
include  weak 
These 
domestically oriented services sectors. 

competition 

  Competition 

in  domestically 

oriented 
services  sectors  is  still  weak,  although  the 
government  took  measures  to  stimulate 
productivity and investment. In the course of 
2017,  Parliament  adopted  measures  to  ease 
increase 
retail  planning 
competition  in  the  taxi  sector.  A  new  building 
regulation entered into force on 1 January 2018 
and  will  simplify  building  procedures.  While 
domestic  standards  have  been  aligned  with 
international  standards  in  some  construction 
sectors, they still hamper competition in others. 

restrictions  and 

Executive summary 

In  past  years,  weak  competition  has  led  to 
higher  consumer  prices  (e.g.  in  retail,  finance, 
distribution  of  utilities  and  network  industries, 
and  wholesale  of  pharmaceuticals)  even  after 
adjusting for purchasing power. 

  Following 

substantial 
several  years  of 
housing  price  increases,  overvaluation  risks 
are  emerging,  particularly 
in  the  main 
urban  areas.  The  prices  are  driven  to  a  large 
extent  by  income  growth  and  demographic 
change  and  fuelled  by  very  low  interest  rates 
and  the  nominal  freeze  of  property  taxes. 
Although housing construction has been robust, 
population growth has been outpacing housing 
stock  increase  in  the  major  urban  areas. 
Housing prices have grown more strongly than 
these 
are 
consequently  signs  of  overvaluation  in  the 
housing market, particularly in the main urban 
areas.  A  reform  agreed  in  May  2017  will  re-
align  property 
taxes  with  actual  property 
values,  putting  an  end  to  the  pro-cyclical 
property tax regime from 2021.  

factors  warrant 

there 

and 

and 

fundamentals 

  Despite  continued  efforts  to  reduce  debt, 
Danish  households’  debt  ranks  among  the 
highest  in  the  EU.  Although  households 
continued  to  reduce  their  debt  in  2017,  debt 
levels  remain  above  what  is  warranted  by 
economic 
prudential 
thresholds  according  to  European  Commission 
the  proportion  of 
estimates.  Moreover, 
mortgage  loans  with  very  high  loan-to-income 
levels and variable interest rate loans has been 
increasing  strongly  since  2013,  particularly  in 
and  around  Copenhagen.  The  combination  of 
high debt with high interest rate sensitivity and 
potentially  overvalued  housing  prices 
is 
increasing  the  risk  of  a  price  correction  that 
could  hurt  the  real  economy  and  the  banking 
sector.  Although  the  Danish  authorities  have 
adopted  new  macro-prudential  measures  to 
further 
high 
household  debt  continues  to  pose  risks  to 
economic stability.   

loan-taking, 

restrict 

risky 

  Shortages of skilled labour in certain sectors 
constitute  a  significant  challenge.  Recent 
active  labour  market  and  education  policy 
reforms are geared to addressing this issue. The 
overall  aim  is  to  improve  the  quality  and 

2 

 
 
Executive summary 

attractiveness  of  vocational  education  and 
training  (VET)  and  ensure  that  workers  have 
the right composition of skills to meet demand. 
Nonetheless,  only  18.5 %  of  Danish  students 
embarked on VET programmes.  This  is below 
the 2025 target under the national VET reform 
(2015), which sees 30 % of each cohort taking 
up VET directly after compulsory schooling. 

  Despite  increased  economic  activity  and 
declining  unemployment,  some  segments  of 
the  population remain on the  margin of the 
labour  market.  This  applies  in  particular  to 
people  with  a  migrant  background  (especially 
those  from  outside  the  EU),  young  people  not 
in  employment,  education  or  training,  and 
reduced  work  capacity  and 
people  with 
disabilities.  Recent  reforms  of  active  labour 
market  policies 
individual 
support for the unemployed and the vulnerable, 
combined with stronger economic incentives to 
work. 

involve  more 

  Various policy measures have been taken to 
help  newly  arrived  refugees  find  work.  The 
focus  is  on  early  intervention  and  assessing 
individuals’  skills.  Initial  results  are  positive, 
with  employment  among  refugees  increasing 
by  15  percentage  points  between  2015  and 
2017.  The 
integration 
education’ (IGU) programme, which got off to 
a slow start, appears to be catching up.   

two-year 

‘basic 

  The savings-investment surplus in Denmark 
reflects  to  a  large  extent  high  corporate 
savings  rather  than  low  investment.  The 
savings  rate  of  companies  has  remained  high, 
despite a return of their investment levels to the 
pre-crisis average. Although aggregate business 
investment  has  normalised, 
investment  by 
smaller companies remains subdued. Financing 
conditions  have  improved,  although  access  to 
finance 
for 
start-ups,  small  companies  and  those  without 
mortgage  collateral.  Government  measures  to 
improve access to finance include initiatives to 
foster  entrepreneurship  and  strengthen  equity 
financing for smaller companies. 

relatively  difficult 

remains 

3 

 
 
 
1.  ECONOMIC SITUATION AND OUTLOOK 

GDP growth  

Denmark’s economy is in a solid upswing. Real 
GDP growth accelerated from 0.2 % in 2012 to an 
estimated  2.1 %  in  2017  and  the  Commission’s 
2018  winter  forecast  projects  it  at  2.0 %  in  2018 
and  1.9 %  in  2019.  Real  GDP  has  been  growing 
faster  than  its  potential  growth  estimates  since 
2013. As  a  result,  the output gap  has  narrowed  to 
around -1 % of potential GDP in 2017 (Graph 1.1).  

Graph 1.1:  GDP growth and contributions 

Source: European Commission, 2018 winter forecast 

in  Denmark’s  main 

Exports,  private  consumption  and  investment 
have been the main drivers of growth. Exports’ 
growth  contribution  has  been  rising  as  economic 
growth 
trading  partners 
strengthened  and  world  trade  resumed.    Private 
consumption has been supported by steady rise in 
disposable  incomes  and  employment.  Despite  the 
solid private consumption growth, its proportion of 
GDP is still below the average since 2000 (Graph 
1.2)  and  overall  households  have  increased  their 
savings  rate.  Particularly  indebted  households’ 
consumption still remain subdued even almost ten 
years  after  the  crisis,  because  have  been  focusing 
their  efforts  to  reduce  their  debt  (Hviid  and 
Kuchler, 2017).  

Investment  as  a  proportion  of  GDP  has  been 
increasing steadily since 2011. It hovered around 
the EU average until 2008, but took a severe hit in 
the  crisis  (and  the  subsequent  housing  bust). 
Investment  has  recovered  since  the  low  of  2011 

and is estimated to have reached 20.1 % of GDP in 
2017,  broadly  in  line  with  its  average  since  2000 
and  the  euro  area  average  of  20.3 %  in  2017. 
Supported  by  dynamically  rising  house  prices, 
dwelling  investment  has  been  the  main  driver  of 
investment 
2013.  Dwelling 
investment  has  increased  its  share  from  3.7 %  of 
GDP  in  2013  to  an  estimated  4.5 %  of  GDP  in 
2017,  while  other  categories  of 
investment 
remained  stable  in  proportion  of  GDP  (see  also 
Section 3.2). 

growth 

since 

Graph 1.2: 

Private consumption and investment 
developments 

Dotted lines represent average since 2000.  
*: Commission forecast 
Source: European commission, 2017 autumn forecast  

in 

the 

coming 

Broad-based  economic  recovery  is  forecast  to 
continue 
years.  Export 
developments are projected to remain strong as the 
economic  recovery  in  Denmark’s  main  trading 
partners  strengthens.  Private  consumption 
is 
expected  to  be  further  bolstered  by  fiscal  policy 
measures (see Section 3.1). Rising house prices are 
forecast  to  maintain  the  impetus  of  dwelling 
investment  in  the  coming  years  (see  Section  3.2). 
As  the  economic  cycle  normalises  and  the  output 
gap  closes,  public  investment  growth  is  expected 
to  slow  and  this  is  set  to  weigh  on  other 
construction activity (see Section 3.4). 

Potential growth 

Potential  GDP  growth  has  been  strengthening 
gradually. Having bottomed out at 0.8 % in 2013, 

4 

-4-3-2-1012345Private consumptionGovernment consumptionInvestmentImportsExportsGDP (y-o-y%)forecastpps.051015202545.54646.54747.54848.5% of GDP% of GDPPrivate consumptionInvestment (rhs) 
 
 
 
1. Economic situation and outlook 

Graph 1.4: 

Productivity growth 

it  is  projected  to  increase  to  1.6 %  in  2018.  The 
pick-up since 2013 has been primarily due to rising 
employment,  compensating  the  losses  between 
2009  and  2013.  The  contributions  of  capital 
accumulation  and  total  factor  productivity  have 
been  relatively  stable,  below  pre-crisis  levels 
(Graph 1.3). 

Graph 1.3: 

Potential growth 

Source: Eurostat 

Labour market and social developments 

Employment  trends  have  remained  robust. 
Employment  has  grown  every  quarter  since  the 
beginning of 2013, expanding by an estimated 2 % 
in  2017.  In  2016,  the  employment  rate  reached 
77.4 %,  above  Denmark’s  average  of  76.8 %  and 
the EU average of 71.7 % since 1995 (Graph 1.5). 
Employment has been driven mainly by the private 
sector.  

Unemployment has  been on a downward  trend 
since  early  2012.  In  2017  it  fell  to  5.8  %. 
Nevertheless 2016 saw a temporary increase due to 
greater  numbers  of  newly  arrived  immigrants 
looking  for  work  (Section  3.3),  which  partly 
reflects  a  policy  change  classifying  recipients  of 
integrations  allowance  as 
It 
remains,  however,  well  below  the  EU  average  of 
7.7 % in 2017.  

'ready-to-work'. 

*: Commission forecast 
Source:  European Commission, 2017 autumn forecast 

EU  Member 

Denmark’s  productivity  growth  has  been  on  a 
downward trend in recent decades – in line with 
(European 
States 
similar 
Commission, 
productivity 
2017b).  Sectoral 
developments  have  been  mixed,  with  solid 
productivity  growth  as  whole  in  manufacturing, 
but  much  weaker  in  the  services  sector  (Graph 
1.4).  In  particular  domestically  oriented  services 
sectors (2)  have  shown  weak  productivity  growth 
(European Commission, 2017b and Produktivitets-
kommissionen,  2013).  Limited  competition has 
been  identified  as  an  important  factor  in  several 
sectors (see Section 3.4 and 3.5).  

(2)  I.e.  sectors  in  which  exports  amount  to  less  than  25 %  of 
total value added, or less than 25 % of total value added are 
produced by foreign-owned companies. 

5 

-0.50.00.51.01.52.0Rate of change y-o-y (%)Total labour (hours) contributionTFP contributionCapital accumulation contributionPotential growth0.00.51.01.52.02.53.03.54.04.5EU-28Euro areaDenmarkEU-28Euro areaDenmarkEU-28Euro areaDenmarkTotalManufacturingServicesaverage annual growth, %1996-20072008-20161996-2016 
 
                                                           
 
1. Economic situation and outlook 

Graph 1.5: 

Employment and unemployment 

1.6 %  in  2019,  supported  by  increasing  service 
prices (Graph 1.6).  

Graph 1.6:  Consumer price inflation 

Dotted lines represent averages since 1995 
Source: European Commission, 2017 autumn forecast  

Source: European Commission, 2018 winter forecast/ 

External position and competitiveness 

Denmark  suffered  substantial  losses  of  export 
market shares following the crisis, primarily as 
regards  goods,  but  the  situation  has  stabilised 
since  2013.  Although  2016  data  indicate  further 
losses due to a negative contribution from  service 
exports,  these  can  be  mainly  attributed  to  a 
temporary  weakness  of 
sea-freight  exports. 
Bolstered  by  resuming  world  trade,  sea-freight 
exports have rebounded recently, thus the negative 
service exports developments of 2016 are likely to 
have  been  reversed  in  2017,  keeping  Denmark’s 
share  of  world  exports  relatively  stable  (Graph 
1.7). 

as 

construction, 

Shortages  of  skilled  labour  are  emerging  as  a 
significant  challenge  for  Denmark.  The  overall 
shortage  remains  well  below  the  pre-crisis  level, 
but  bottlenecks  are  starting  to  appear  in  sectors, 
and 
such 
communication  technology  and  services.  At  the 
same 
lower  employment  rates  can  be 
observed  for  those  on  the  margins  of  the  labour 
market  and  improving  the  inclusion  of  vulnerable 
groups such as migrants, young people and people 
with  reduced  work  capacity  and  disabilities 
remains a key challenge.  

information 

time, 

Denmark  has  a  low  level  of  income  inequality. 
Overall economic growth has been inclusive, with 
than  GDP 
income  growing  faster 
household 
favourable 
and 
and  2017 
between  2010 
developments in employment and social indicators. 
The  income  of  the  richest  20 %  of  households 
remained 4.1 times greater than that of the poorest 
20 %  in  2016.  The  distribution  of  household  net 
wealth  is  impacted  by  unequal  ownership  of 
housing  assets  combined  with  steeply  increasing 
house prices, particularly in Copenhagen. 

Inflation 

Consumer  price  inflation  remains  low,  but  is 
expected  to  pick  up.  The  harmonised  index  of 
consumer prices rose by 1.1 % in 2017 as a result 
of  increasing  core  and  energy  inflation.  It  is 
expected  to  rise  gradually,  by  1.4 %  in  2018  and 

6 

0%1%2%3%4%5%6%7%8%71%72%73%74%75%76%77%78%79%80%81%Employment rateUnemployment rate (rhs)-101234200820092010201120122013201420152016201720182019y-o-y %Core inflationEnergy and unprocessed foodHICPforecast 
 
 
1. Economic situation and outlook 

Graph 1.7: 

Export market share breakdown 

Graph 1.8: 

Sectoral contributions to the current account 

Source: European Commission 

than 

rather 

savings 

The  current  account  surplus  reached  8.1 %  of 
GDP  in  the  third  quarter  of  2017.  At  7.2 %  of 
GDP in cyclically adjusted terms, the 2017 current 
account  surplus  remained  considerably  above  the 
current  account  norm  suggested  by  fundamentals 
(between 0 % and 1 % of GDP) (see Section 3.4). 
Increasing 
depressed 
investment  are  the  main  reason  for  the  sustained 
high surplus. Despite business investments almost 
returning  to  pre-crisis  average,  corporate  savings 
remain high (around 6 % of GDP), well above pre-
crisis  levels  (Graph  1.8).  Household  saving  is 
forecast to remain high due to pension savings and 
the  continuing  efforts  to  reduce  debt  (see  Section 
3.2).  Also,  household  investment  has  started  to 
increase,  although  it  is  still  well  below  the  pre-
crisis level (see Section 3.4).    

Source: Eurostat 

Accumulated current account surpluses pushed 
the net international investment position (NIIP) 
to 53 % of GDP in the third quarter of 2017. To 
a  large  extent,  the  high  NIIP  reflects  large 
household  pension  savings.  The  high  net  stock  of 
foreign assets has generated significant investment 
income  revenue,  which  also  support  the  current 
account  surplus  (Section  3.4).  To  keep  the  NIIP 
stable over the next 10 years, Denmark would need 
a  current  account  balance  of  1.2 %  of  GDP. 
Therefore, the NIIP is likely to increase in the next 
few  years,  although  much  will  depend  on  highly 
instance, 
fluctuating  valuation 
significant  valuation  losses  in  2015  (-14 %  of 
GDP)  have  been  fully  compensated  by  gains  in 
2016 (+15.8 %). 

effects: 

for 

There is no sign of deterioration for Denmark’s 
external  competitiveness.  The  real  effective 
exchange  rate  has  been  well  below  the  euro  area 
and  the  EU  averages  since  2001.  Although  unit 
labour  cost  developments 
in  Denmark  have 
remained  relatively  subdued,  labour  costs  in  the 
manufacturing  sector  have  since  2015  risen  more 
in  Denmark  than  in  its  main  trading  partners, 
putting  pressure  on  cost  competitiveness  (Graph 
1.9). 

7 

-15-10-50510Rate of change y-o-y (%)Contribution to EMS: goodsContribution to EMS: servicesExport market share growth yoy-8-6-4-2024681012% of GDPHouseholds and NPISHGeneral governmentCorporationsTotal economy 
 
 
1. Economic situation and outlook 

in house prices and discourage banks to providing 
risky mortgages (see Section 3.2). 

Danish  households  have  continued  to  reduce 
their  debt.  Since  the  burst  of  the  housing  bubble 
in 2008, households have been in a state of passive 
deleveraging,  where  nominal  GDP  growth  has 
outpaced  that  of  credit.  As  a  result,  households’ 
debt has fallen from its peak of 143 % of GDP in 
2009 to an estimated 127 % in 2017.  

Main macroeconomic risks  

Labour market developments can have negative 
impact  on  the  Danish  economic  upturn  in  the 
medium  term.  As  a  result  of  high  economic 
activity  and  unemployment  close  to  its  natural 
level, several sectors appear to be facing increasing 
shortages of skilled labour (Section 3.3), leading to 
upward  pressures  on  wage  growth.  While  this 
remains  subdued,  it  has  moved  beyond  levels 
observed 
trading  partners  and  ahead  of 
productivity  developments,  thus  raising  concerns 
about  losses  of  external  competitiveness  (Section 
3.4.).  

in 

Rising house prices and high levels of household 
indebtedness make  the  economy  more  sensitive 
to  shocks.  A  possible  overvaluation  of  house 
prices  in  certain  regions  could  entail  a  risk  of  a 
disorderly  and harmful correction with  a potential 
impact  on  the  real  economy  and  the  banking 
the  real  economy  are 
sector.  The  risks  for 
amplified  by  the  high  level  of  household  debt. 
Although  households’  high  gross  debt  is  matched 
by  even higher  assets,  most  of  the  assets (such  as 
housing equity and pension savings) are relatively 
illiquid,  limiting  their  use  for  debt  servicing.    In 
mitigation,  it  is  the  households  with  the  highest 
incomes  that  tend  to  have  the  highest  debts. 
Commission estimates nevertheless suggest further 
deleveraging  needs  as  households’  debt  exceed 
levels  warranted  by  economic 
fundamentals 
(Section 3.2).  

are 

there 

loans 

Risks  are  building  up  in  households’  mortgage 
portfolio.  Although 
positive 
developments  (the  proportion  of  variable  interest 
rate 
the  pace  of 
amortisation  is  increasing  in  the  overall  mortgage 
stock)  the  proportion  of  new  high  loan-to-income 
mortgage  loans  is  increasing  sharply,  particularly 
in the Copenhagen area. The authorities have taken 

is  decreasing  and 

Graph 1.9: 

Labour costs, manufacturing 

Source: Danmarks Nationalbank, 2017a 

Monetary policy 

The fixed exchange rate has been a cornerstone 
of Danish economic policy since 1982. Denmark 
is  the  only  country  in  the  ERM-II.  It  maintains  a 
central  rate  of  DKK 7.46038  to  the  euro  with  a 
narrow  fluctuation  band  of  ±2.25 %.  Monetary 
policy  rates  were  kept  stable  in  2017:  the  lending 
rate at 0.05 % and the deposit rate at -0.65 %. 

Financial  sector,  housing  market  and  private 
indebtedness  

The  Danish  banking  sector  is  well  capitalised 
and  bank  profitability  has  improved.  Although 
the  non-performing  loans  are  low  and  declining, 
Denmark  is  outperformed  by  its  Nordic  peers  as 
regards  the  quality  of  bank  assets,  as  some  of  its 
banks  are  still  suffering  from  legacies  of  the 
economic crisis (Section 3.2). 

House  price  growth  has  continued,  albeit  at  a 
slower pace. To date, this has been so far mainly 
driven  by  the  two  major  cities  of  Denmark 
(Copenhagen and Aarhus), while developments in 
the  rest  of  the  country  have  remained  relatively 
subdued.  As  a  result,  prices  (in  particular  for 
owner-occupied 
already 
apartments) 
exceeded  their  pre-crisis  levels  in  Copenhagen 
raising  overvaluation  concerns.  The  government 
has  taken  macroprudential  and  taxation  policy 
measures  to  address  the  stark  regional  differences 

have 

8 

0123456%, y-o-yDenmarkTrading partners 
 
1. Economic situation and outlook 

impact  of  payments  due  to  the  reform  of  the 
voluntary early retirement scheme (2018). 

to  decline, 
Gross  public  debt  continued 
reaching  an  estimated  36.1 %  of  GDP  in  2017, 
thanks  partly  to  small  primary  surpluses. 
Interest  expenditure  amounted  to  1.4 %  of  GDP, 
despite  low  gross  debt.  This  is  consistent  with  an 
implicit  average  interest  rate  of  3.6 %,  which  is 
higher  than  for  other  Member  States,  even  after 
accounting  for  differences  in  sovereign  credit 
ratings. The higher spread relates partly to a lower 
proportion  of  T-bills  in  the  outstanding  stock  of 
public  debt  and  high  coupons  on  issued  30-years 
bonds (Graph 1.10). 

Graph 1.10:  Gross public debt and interest burden 

Source: Eurostat 

Public  gross  debt 
is  projected  to  decline 
gradually  to  34.7 %  of  GDP  in  2019.  This  is 
initially  helped  by  a 
in  general 
government cash reserves, but also due to the low 
interest  rate  environment  and  buoyant  economic 
growth. 

reduction 

a  number  of  measures  to  bolster  the  mortgage 
system,  strengthen  the  stability,  supervision  and 
regulation  of  the  financial  system  and  to  address 
regional  house  price  divergence  (see  also  Section 
3.2). 

Public finances 

The  nominal  headline  balance  turned  positive 
in  the  course  of  2017,  compared  to  a  deficit  of 
0.4 %  of  GDP  in  2016.  In  annualised  terms,  the 
nominal headline balance stood at 0.1 % of GDP in 
the  third  quarter  of  2017.  The  improvement  was 
driven  mainly  by  a  reduction in  total  expenditure, 
from 54.4 % of GDP in 2016 to 51.8 % in the third 
quarter of 2017. Public investment fell to 3.5 % of 
GDP,  but  remained  above  the  average  since  1995 
(3.1 %) and well above the 2016 euro area average 
of 2.6 %. The other main expenditure components 
declined  as  a  proportion  of  GDP,  including 
compensation  of  employees,  reflecting  moderate 
wage  growth 
public 
employment.  Total  revenue,  in  annualised  terms, 
fell from 53.7 % of GDP in 2016 to 51.9 % in the 
third  quarter  of  2017,  despite  positive  surprises 
stemming from high pension yield tax revenue.  

broadly 

stable 

and 

The  general  government  headline  deficit  is 
forecast to remain broadly stable at around 1 % 
of  GDP  in  2018  and  2019.  While  the  economic 
recovery  supports  the  fiscal  position  over  the 
period,  temporary  fluctuations  are  expected  to 
weigh  on  the  fiscal  balance.  The  improvement  of 
the nominal headline balance from -0.4 % of GDP 
in  2016  to  0.1 %  in  the  third  quarter  of  2017 
mainly reflects higher-than-expected revenue from 
the  pension  yield  tax.  In  2018,  new  incentives  to 
opt  out  of  the  voluntary  early  retirement  scheme 
are  expected  to  increase  the  deficit  by  0.2 %  of 
GDP and pension yield tax revenue is projected to 
decline  from  the  high  level  observed  in  2017, 
pulling  the  headline  balance  to  negative  territory. 
In  2019,  pension  yield  tax  revenue  is  forecast  to 
remain  low  and  the  envisaged  repayment  of 
overcharged  property  taxes  is  estimated  to  shave 
0.6 % of GDP from the fiscal balance, arresting the 
headline  balance  at  broadly  the  same  level  as  in 
2018. 

The  structural  balance  is  expected  to  hover 
around –0.5 % of GDP over the forecast period. 
The gradual closing of the output gap will support 
the  structural  position,  offsetting  the  negative 

9 

010203040506070809001234567200220092016200220092016200220092016Interestexpenditure, % ofGDP, lhsAverage interestrate, %, lhsPublic gross debt,% of GDP, rhsDKEU-28 
 
 
 
 
 
1. Economic situation and outlook 

Table 1.1: 

Key economic, financial and social indicators 

(1)  NIIP excluding direct investment and portfolio equity shares.   2) Domestic banking groups and stand-alone banks, EU and 
non-EU foreign-controlled subsidiaries and EU and non-EU foreign-controlled branches.         
Source: Eurostat and ECB as of 30 Jan 2018, where available; European Commission for forecast figures (Winter forecast 2018 
for real GDP and HICP, Autumn forecast 2017 otherwise)      

10 

2004-072008-122013-1420152016201720182019Real GDP (y-o-y)2,5-0,41,31,62,02,12,01,9Potential growth (y-o-y)1,41,00,81,21,41,61,71,7Private consumption (y-o-y)3,3-0,30,61,62,1...Public consumption (y-o-y)1,61,60,91,10,3...Gross fixed capital formation (y-o-y)5,8-3,62,93,16,0...Exports of goods and services (y-o-y)6,21,02,42,32,8...Imports of goods and services (y-o-y) 9,50,52,71,93,8...Contribution to GDP growth:Domestic demand (y-o-y)3,2-0,51,11,62,2...Inventories (y-o-y)0,3-0,20,2-0,40,0...Net exports (y-o-y)-1,00,30,00,4-0,3...Contribution to potential GDP growth:Total Labour (hours) (y-o-y)0,1-0,2-0,10,40,50,60,60,5Capital accumulation (y-o-y)0,80,30,30,40,50,50,60,6Total factor productivity (y-o-y)0,50,90,60,50,40,50,50,6Output gap3,6-1,8-2,4-1,7-1,5-0,8-0,5-0,4Unemployment rate4,56,46,86,26,25,95,65,5GDP deflator (y-o-y)2,42,21,00,70,01,61,72,1Harmonised index of consumer prices (HICP, y-o-y)1,52,40,40,20,01,11,41,6Nominal compensation per employee (y-o-y)3,42,61,51,61,21,92,53,0Labour productivity (real, person employed, y-o-y)1,10,60,80,30,3...Unit labour costs (ULC, whole economy, y-o-y)2,32,00,71,30,91,51,71,9Real unit labour costs (y-o-y)0,0-0,2-0,30,51,0-0,10,0-0,1Real effective exchange rate (ULC, y-o-y)1,5-0,81,4-2,31,12,02,20,2Real effective exchange rate (HICP, y-o-y)-0,2-0,70,9-3,21,20,21,6.Savings rate of households (net saving as percentage of net disposable income)-2,7-0,1-0,54,24,3...Private credit flow, consolidated (% of GDP)17,55,3-1,6-6,23,9...Private sector debt, consolidated (% of GDP)192,3224,0215,1207,4208,6...of which household debt, consolidated (% of GDP)116,5136,5132,0129,2128,9...of which non-financial corporate debt, consolidated (% of GDP)74,886,882,778,079,4...Gross non-performing debt (% of total debt instruments and total loans and advances) (2).2,94,54,03,4...Corporations, net lending (+) or net borrowing (-) (% of GDP)3,67,88,78,66,77,57,27,0Corporations, gross operating surplus (% of GDP)22,722,323,824,123,322,322,422,2Households, net lending (+) or net borrowing (-) (% of GDP)-4,8-1,0-0,51,41,01,61,81,8Deflated house price index (y-o-y)11,1-6,03,06,34,2...Residential investment (% of GDP)6,24,33,84,14,5...Current account balance (% of GDP), balance of payments3,05,28,38,87,38,58,38,2Trade balance (% of GDP), balance of payments4,25,56,87,36,2...Terms of trade of goods and services (y-o-y)0,40,61,3-0,1-0,80,50,20,2Capital account balance (% of GDP)0,10,1-0,1-0,40,0...Net international investment position (% of GDP)-0,814,540,334,354,8...Net marketable external debt (% of GDP) (1)-25,6-18,53,99,814,8...Gross marketable external debt (% of GDP) (1)139,7163,7168,5166,6171,8...Export performance vs. advanced countries (% change over 5 years)3,2-0,6-10,6-6,8-6,9...Export market share, goods and services (y-o-y)-1,6-3,71,3-2,0-0,2...Net FDI flows (% of GDP)1,82,11,41,83,7...General government balance (% of GDP)4,3-1,60,0-1,5-0,4-1,0-1,0-0,9Structural budget balance (% of GDP).-0,7-0,9-1,80,4-0,5-0,6-0,7General government gross debt (% of GDP)35,141,444,039,537,736,135,434,6Tax-to-GDP ratio (%)48,246,348,647,447,346,345,945,6Tax rate for a single person earning the average wage (%)41,039,135,735,936,0...Tax rate for a single person earning 50% of the average wage (%)37,636,030,931,131,2...forecast 
 
 
 
2.  PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS 

  Progress  with  the 
implementation  of  the 
recommendations  addressed  to  Denmark  in 
2017 has to be seen in a longer term perspective 
since the introduction of the European Semester 
in  2011.  In  a  multi-annual  assessment  of  the 
implementation of the CSRs since these were first 
adopted,  91 %  of  all  CSRs  addressed  to  Denmark 
have  recorded  at  least  ‘some  progress’.  9 %  of 
these CSRs recorded ‘limited progress’ (see Graph 
2.1).  Substantial  progress  and  full implementation 
have been achieved, in particular in areas related to 
public  finances  but  also  in  areas  related  to  labour 
market policies and financial stability.  

Graph 2.1: 

Level of implementation today of 2011-2017 
CSRs 

(1) The overall assessment of the country-specific 
recommendations related to fiscal policy excludes 
compliance with the Stability and Growth Pact.  
(2) The multiannual CSR assessment looks at the 
implementation until 2018 Country Report since the CSRs 
were first adopted. 
Source: European Commission 

As regards public finances, Denmark delivered 
a timely and durable correction of its excessive 
deficit  by  2013.  The  general  government  deficit, 
which  according  to  the  notification  from  Danish 
authorities in April 2010, was planned at 5.4 % of 
GDP  in  2010,  never  actually  crossed  the  3 %  of 
GDP  Treaty  reference  value  in  the  years  in  the 
Excessive Deficit Procedure, except in 2012, when 
the  headline  balance  was  negatively  affected  by  a 
pension reform measure. Between 2010 and 2013, 
the  headline  balance  improved  from  -2.7 %  of 
GDP  to  -1.1 %  of  GDP,  and  the  deficit  has  been 
below 3 % of the GDP since then. Moreover, with 

effect  from  2014,  Denmark  introduced  legally 
binding  multi-annual  expenditure  ceilings  on  all 
three  levels  of  the  public  sector.  Following  the 
framework 
fiscal 
2016  amendment  of 
introducing 
comply-or-explain  principle, 
national  law  is  in  compliance  with  the  Fiscal 
Compact. 

the 

the 

Long-term  labour  supply  and  improving  the 
employability  of  people  at  the  margins  of  the 
labour  market  were  topics  for  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 
the  drop-out  rates  within  vocational 
reduce 
education. Denmark made substantial progress for 
the recommendations in these areas to be dropped 
in 2015. Since then the labour market performance 
has  continued  to  significantly  improve  and  the 
number of people on social assistance benefits has 
declined.  There  are,  however,  emerging  labour 
shortages  -  in  particular  in  the  construction, 
services  and  ICT  sectors  -  and  attracting  students 
to choose a vocational education (VET) remains a 
key challenge.  

in 

2019 

implemented 

The  2011-2012  recommendation  to  strengthen 
the  stability  of  the  housing  market  and  the 
financial  sector 
the  medium-term  was 
dropped on the back of several initiatives from 
Danish  authorities.  Macroprudential  measures  to 
the  housing 
safeguard  financial  stability  and 
market  have  been  adopted.  These  include  the 
Supervisory  Diamond  for  commercial  banks  and 
mortgage institutions to reduce risky lending (to be 
2020, 
by 
fully 
respectively).  The  introduction  of  loan-to-value 
cap  for  mortgage  loans  and  a  5%  compulsory 
down  payment  for  new  loan  applications  also 
aimed to reduce risky mortgage loan taking. More 
recent  measures  include  and  a  reform  from  May 
2017  that  will  re-align  property  taxes  with  actual 
property  values,  hence  putting  an  end  to  the  pro-
cyclical property tax from 2021 which also fuelled 
regional 
divergence.  Further 
macroprudential  measures  took  effect  from  1 
January  2018  requiring  amortisation  for  mortgage 
loans  with  high  loan  to  income  values  subject  to 
variable interest rate loans. 

house 

price 

and 

11 

No progress0%Limited progress9%Some progress38%Substantial progress29%Full implementation24% 
 
 
2. Progress with country-specific recommendations 

Board,  ownership  restrictions  continue  to  hamper 
competition  in  other  sectors  as  well  (e.g.  dentists, 
doctors, pharmacies and lawyers). 

to 

Since  2011,  Denmark  made  some  progress  in 
addressing 
foster 
the  recommendations 
competition  and  productivity.  The  government 
has  adopted  reforms  concerning  specific  sectors, 
such  as  retail  and  transport  services,  hence  some 
progress  in  this  area.  Following  the  mapping  of 
standards in 2015, the modernisation of the law on 
electrical  installations  in  2015,  and  the  2018 
update  of  the  building  regulation  to  simplify 
procedures  there  has  also  been  some  progress  in 
increasing  competition  in  the  construction  sector. 
Furthermore,  there  has  been  some  progress  in 
incentivising  the  cooperation  between  businesses 
specific 
and 
universities, 
programmes  and 
the 
Innovation Fund. 

by 
the  establishment  of 

setting 

up 

the 

2017 

limited  progress 

in 
Denmark  has  made 
addressing 
country-specific 
recommendation. While  initially concentrated  on 
specific  sectors,  the  recommendation  to  foster 
competition  and  productivity  growth  became 
broader  in  2017,  targeting  domestically  oriented 
services  in  general.  However,  recent  government 
efforts to increase competition in the domestically 
oriented  services  have  focused  on  transport  and 
retail  sectors,  while  previously  adopted  measures 
in the construction sector went into force in 2018. 
On the other hand, weak competition continues to 
prevail in several services sectors, such as finance, 
distribution  of  utilities 
and  wholesale  of 
pharmaceuticals.  In  these  sectors  none  or  limited 
progress  was  made,  although  the  Competition 
Authority  has  documented  that  weak  competition 
has  put  upward  pressure  on  consumer  prices. 
Moreover,  as  pointed  out  by  the  Productivity 

Table 2.1: 

CSR progress 

Source:  European Commission 

12 

Denmark  Overall assessment of progress with 2017 CSR: Limited progress CSR 1:  Foster competition in the domestically oriented services sector  Denmark has made limited Progress in addressing CSR 1: Some progress was made in 2017 on easing restrictions for retail establishment and on increasing competition in the transport sector. Reforms in the construction sector adopted in 2016 will take effect in 2018, simplifying the building permit procedure to make it more effective with a view to increase competition. None or very limited progress has been made in other domestically oriented services sectors (finance and distribution of utilities), as pointed out by also the national Productivity Board.    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2. Progress with country-specific recommendations 

ESI  Funds  address  challenges  to 
inclusive 
growth  and  convergence  in  Denmark.  This  is 
done  by  promoting  SME  development  via  the 
networking 
clusters 
reinforcement 
constellations 
innovation-oriented 
for 
collaborations  with  research  institutes  and  the 
support of technology transfers (See also Box 2.1). 

and 

of 

13 

 
 
 
 
 
2. Progress with country-specific recommendations 

Box 2.1: Tangible results delivered through EU support for structural change in Denmark 

Denmark is a beneficiary of European Structural and Investment Funds (ESI Funds) support and can receive 
up  to  EUR  1.5  billion  until  2020.  This  represents  around  2 %  of  public  investment (1)  annually  over  the 
period 2014-2018. By 31 December 2017, an estimated EUR 796 million (51% of the total) was allocated to 
projects  on  the  ground.  This  has  paved  the  way  for  over  800  enterprises  to  cooperate  with  research 
institutions; and over 400 firms are being supported to introduce new products in the markets they operate 
in. 

ESI Funds help address structural policy challenges and implement country-specific recommendations.  ESI 
Fund 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 address 
challenges outlined in CSRs, with support to innovation in businesses expected to result in 2 700 businesses 
being able to introduce new  products to the business or the market they operate in.  

Various reforms were undertaken already as precondition for ESI Funds support.  All necessary reforms and 
strategies  as  required  by  the  ex-ante  conditionalities  have  been  met  prior  to  programme  adoption  thus 
ensuring  a  timely  and  efficient  up-take  of  the  funds.  In  Denmark  this  related  to  Smart  Specialisation 
Strategies for research and innovation to focus efforts on product specialisation with strong market potential. 

Denmark is advancing the take up of the European Fund for Strategic Investments (EFSI). As of December 
2017,  overall  financing  volume  of  operations  approved  under  the  EFSI  amounted  to  EUR  531  million, 
which  is  expected  to  trigger  total  private and  public  investment  of  EUR  1.6  billion.  More  specifically,  10 
projects  involving  Denmark  have  been  approved  so  far  under  the  Infrastructure  and  Innovation  Window 
(including 6 multi-country projects), amounting to EUR 327 million in EIB financing under the EFSI. This 
is expected to trigger about EUR 900 million in investments. Under the SME Window, five agreements with 
financial  intermediaries  have  been  approved  so  far.  European  Investment  Fund  financing  enabled  by  the 
EFSI amounts to EUR 205 million, which is expected to mobilise approximatively EUR 720 million in total 
investment.  Some  1 148  smaller  companies  or  start-ups  will  benefit  from  this  support.  SMEs  rank  first  in 
terms of operations and volume approved, followed by transport and R&I. 

Funding  under  Horizon  2020,  the  Connecting  Europe  Facility  and  other  directly  managed  EU  funds  is 
additional to the ESI Funds. By the end of 2017, Denmark has signed agreements for EUR 668 million for 
projects under the Connecting Europe Facility. 

https://cohesiondata.ec.europa.eu/countries/DK 

(1)  Public investment is defined as gross fixed capital formation, investment grants and national expenditure on agriculture 

and fisheries. 

14 

 
 
3.  REFORM PRIORITIES 

3.1.  PUBLIC FINANCES AND TAXATION 

Taxation 

cause large fluctuations in the nominal headline as 
well as the structural balance. (3)  

in 

fluctuations 

The  tax  burden  continued  to  decline  in  2016, 
amid  big 
some  revenue 
components.  It  is  expected  to  have  fallen  to 
46.5 %  of  GDP  in  2017,  down  from  50.6 %  in 
2014.  Some  tax  headings  continued  to  show  very 
high  volatility,  in  particular  revenue  from  the 
pension-yield tax (Graph 3.1.1). 

Graph 3.1.1:  Pension yield tax revenue 

Source: Statistics Denmark 

Volatile  revenue  components  could  generate 
large fluctuations  in the  nominal  as  well as  the 
structural  headline  deficit.  Revenue  volatility 
stems from fluctuations in capital gains. As the tax 
base  is  relatively  large,  fluctuations  in  pensions' 
yields  have  a  relative  large  impact  on  total 
revenue.  Accumulated  pension  savings  have 
increased from around 75 % of GDP to 200 % (see 
Section  3.4  and  Graph 3.1.1).  The  yields  on 
pension savings are subject to a flat 15.3% tax rate. 
This is lower than the rate on other types of capital 
income and therefore encourages pension savings. 
The  European  Commission  does  not  discount  for 
the  effect  of  volatile  revenue  components  when 
estimating 
(European 
the  structural  position 
Commission, 2015). As a result, this volatility can 

Effective tax rates on income and savings 

to 

improve 

income  taxation 

Personal 
is  reducing  the 
incentives  to  take  up  employment,  particularly 
for workers at the margin of the labour market. 
Despite  efforts 
the  economic 
incentives,  some  segments  of  the  working-age 
population are still likely to face risks of inactivity 
traps. (4) This relates to high average effective tax 
rates  due  to  the  phasing  out  of  welfare  benefits. 
tax  and  benefit 
According 
indicator,  the  inactivity  trap  for  low  income 
families is among the biggest in the EU (European 
Commission, 2017b).  

the  OECD’s 

to 

Workers  with  low  pension  savings  have  faced 
high marginal tax rates on those savings. Part of 
the  public  pension  (around  50 %  for  singles  and 
33 % for those who are married or in a registered 
partnership) is means-tested. For workers with low 
pension savings, the reduction in the means-tested 
public pension increases the effective marginal tax 
on  pension  savings  by  18  percentage  points  (pps) 
(Ministry  of  Finance,  2017a).  Effective  marginal 
tax  rates  may  be  as  high  as  80 %  for  single 
households 
benefits 
(Pensionskommissionen, 2015). In 2017 and early 
2018,  Parliament  adopted  reforms 
to  reduce 
effective  marginal  tax  rates  on  pension  savings. 
According  to  the  government,  these  reforms  have 
lowered the effective marginal tax rates on pension 
savings (Ministry of Finance, 2017b and 2018). 

receiving 

welfare 

Tax reforms 

Cuts  in  car  registration  taxes  have  created 
incentives to buy safer cars. Under an agreement 

(3)  The  Ministry  of  Finance  abstracts  from  volatility  in  some 
revenue  components  when  estimating  the  structural  fiscal 
position (Ministry of Finance, 2012). As a result, Ministry 
of  Finance  and  the  European  Commission  may  assess  the 
structural position differently in the short term, but should 
nevertheless  point  to  broadly  the  same  position  in  the 
medium term. 

(4)  This  measures  the  absence  of  a  short-term  financial 
incentive for an inactive person entitled to welfare benefits 
(such  as  social  assistance  or  unemployment  benefits)  to 
move from inactivity to paid employment. 

15 

00.511.522.53% of GDP 
 
 
                                                           
3.1. Public finances and taxation 

Fiscal framework 

(-0.5 % 

A  ‘comply-or-explain’  clause  was  enshrined  in 
law  in  December  2016  in  line  with  the  Fiscal 
Compact requirements. Current laws and budget 
procedures  prevent  the  Finance  Minister  from 
presenting Parliament with a draft budget planning 
a  structural  balance  worse  than  the  medium-term 
The 
objective 
‘comply-or-explain’ 
on 
27 December 2016 complements the existing fiscal 
framework.  The  Fiscal  Council  is  mandated  to 
assess and validate the draft budgets. If it finds that 
the  budget  could  lead  to  deviation  from  the 
medium-term  objective, 
the  new  amendment 
requires  the  Finance  Minister  to  bring  it  in  line 
with  the  medium-term  objective  or  explain  why 
he/she assesses the situation differently.  

GDP). 
adopted 

of 
clause 

Debt arrears management 

Denmark  is  reforming  its  system  for  managing 
tax debt arrears. Errors and delays resulting from 
the  now-discontinued  common  collection  system 
(EFI)  project  gave  rise  to  uncertainty  over  the 
amount  of  uncollected  tax  debt  and  failures  in 
recovery. Following the termination of the project, 
the  government,  with  the  support  of  Parliament, 
agreed  to  write  off  debt  to  the  public  sector  for  a 
nominal  value  of  DKK 5.8 billion  (real  value  of 
DKK 1 billion).  This  is  less  than  the  worst-case 
scenario  of  DKK  14  billion  outlined  in  2015  on 
closure of EFI. The items to be written off mainly 
concern  socially  and  economically  vulnerable 
citizens, where the chances of recovery are small. 

A  reform  of  the  tax  administration  has  been 
decided, including the allocation more resources 
to  tax  debt  arrears  collection.  In  the  summer  of 
2017, the Danish Ministry of Taxation announced 
plans to reform the tax administration whereby the 
current  tax  administration  (SKAT)  is  to  be  split 
into seven agencies, including a new one dedicated 
to  debt  collection.  Staff  will  increase  from  900 
employees  to  1 500  and  a  new  IT-system  is 
expected  to  be  finalised  in  2019.  Furthermore, 
resources  will  be  allocated  to  a  specialised  task 
force  focusing  on  collecting  debt  from  Danes 
trying to avoid tax debt by settling abroad.  

the 

lifted 

threshold  was 

from September 2017 between the government and 
the  opposition  Danish  People’s  Party,  registration 
taxes were cut for cars that receive a five-star Euro 
NCAP safety rating. The reform also increased the 
tax  deductions  for  safe  cars,  while  cars  with  high 
fuel consumption will be taxed more. The marginal 
tax rate on expensive cars remained unchanged at 
to 
150 %,  but 
DKK 185 000,  from  the  current  DKK 106 600. 
Below  this  threshold,  taxes  were  lowered  from 
105 % to 85 % of the purchase price. Electric cars 
continue  to  receive  a  discount  on  the  registration 
tax  of  60  %.  The  discount  will  nevertheless  be 
phased  out  gradually  by  2022,  as  foreseen  in  the 
political agreement from April 2017. Overall, these 
changes  may  create  incentives  to  buy  new,  safer 
cars,  while  less  safe  cars  and  cars  with  high  fuel 
consumption  may  become  more  expensive.  The 
government estimates that registration tax revenue 
will fall by DKK 600 million (0.03 % of GDP). 

The  base  of  the  earned  income  tax  credit  was 
broadened  to  include  contributions  to  pension 
schemes,  helping  to  further  reduce  the  high 
marginal tax rates on pension savings. The reform 
increases  the  tax  value  of  pension  savings  by 
3 percentage  points.  The 
the 
additional  earned  income  tax  credit  improves  the 
incentive  to  participate  on  the  labour  market  for 
low wage earners. The changes are effective as of 
2018. 

introduction  of 

From 2021, property taxes will be linked to the 
property valuation, which will be updated every 
two  years.  To  avoid  a  bigger  tax  bill,  the 
government  will  lower  the  property  tax  base    and 
the  average  municipal 
tax.  Currently, 
properties worth over DKK 3 million are subject to 
a  higher  marginal  tax  rate.  From  2021,  the 
threshold  will  be  raised  to  DKK 7.5 million  and 
the  progressive  property 
reduced.  The 
government estimates that approximately six in 10 
property owners will pay less tax.  

land 

tax 

The reform of property valuation is progressing 
under the government’s plan for new and more 
accurate  assessments.  These  are  expected  in 
2019.  Property  owners  will  have  access  to  the 
assessment  criteria  and  be  able  to  correct  errors. 
Under the planned reform of the tax administration 
(SKAT), a new property evaluation agency will be 
set up. 

16 

 
3.1. Public finances and taxation 

Fiscal sustainability and pension 

Graph 3.1.2:  Life expectancy projections 

to 

risks.  According 

Denmark  does  not  appear  to  be  facing  fiscal 
sustainability 
the 
Commission’s  2017  debt  sustainability  monitor, 
Denmark does not face short, medium or long-term 
risks  of  fiscal  stress.  Government  gross  debt 
(estimated at 36.1 % of GDP in 2017) is forecast to 
fall to 24.1 % in 2028, thus remaining well below 
the  60 %  Treaty  threshold.  It  is  not  projected  to 
exceed the 2016 level in that period. (5)  

Updated population projections suggest that life 
expectancy  is  increasing  faster  than  envisaged 
in  the  2006  welfare  and  the  2011  pension 
reforms  (Ministry  of  Finance,  2017c).  With  the 
reforms  in  2006  and  2011,  retirement  age  was 
indexed  to  life  expectancy. (6)  However,  new 
population projections show that older people now 
can  expect  to  live  longer  than  envisaged  in  2011 
(Graph 3.1.2). According to an analysis carried out 
for the forthcoming Pension Adequacy Report, the 
Danish  pension  system  performs  well  as  regards 
poverty protection compared to other EU Member 
States, but less so on income protection. (7) 

(5)  For  an  overview  of  the  Commission’s  fiscal  sustainability 

assessment see European Commission, 2018. 

(6)  Subject to a decision by Parliament. 
(7)  Income  maintenance  is  complemented  by  occupational 
pension  schemes  which,  however,  do  not  cover  self-
employed  and  employed  not  covered  by  collective 
agreements.  This  group  may  compensate 
through 
individual private savings. 

Source: Ministry of Finance, 2017c 

New  incentives  to  postpone  retirement  were 
legislated  in  June  2017.  The  agreement  provides 
new  incentives  to  opt  out  of  the  early  retirement 
scheme.  The  Ministry  of  Finance  estimates  that 
these costs will amount to the equivalent to 0.2 % 
of GDP in 2018 (Ministry of Economic Affairs and 
the  Interior,  2017),  but  reduce  costs  over  the 
medium to long term. Also, workers will be paid in 
return for postponing their retirement. However, it 
these  new  measures  will 
is  estimated 
compensate  only  partially  the  additional  fiscal 
costs of higher than foreseen life expectancy.   

that 

17 

76788082848688909219902000201020202030204020502060Population projection, 20172011 pension reform2006 welfare reformyearsLife expectancy in 2017 
                                                           
 
3.2.  FINANCIAL SECTOR 

3.2.1.  HOUSING  MARKET 
INDEBTEDNESS 

AND 

PRIVATE 

Graph 3.2.1:  Residential investment and housing Q ratio 

Housing market 

Housing  price  growth  in  Denmark  has  slowed 
down  recently.  The  real  annual  growth  rate 
peaked  in  2015  at  6.3 %  and  then  moderated  to 
4.1 % in 2016 and 3.6 % in H1 2017. These rates 
are still above the euro area average or Denmark’s 
long-term average of 2.3 %.  

Demand-side  drivers  have  been  conducive  to 
housing  price  growth.  Households’  real  gross 
disposable  income  has  increased  on  average  by 
around 3 % since 2012. Mortgage interest rates fell 
to  historically  low  levels  by  the  end  of  2015  and 
have  increased  only  slightly  since.  Denmark’s 
unique  mortgage  system  has  provided  households 
with  a  wide  range  of  low-cost  mortgage  loans, 
resulting  in  one  of  the  lowest  mortgage  interest 
rates  in  the  EU.  The  working-age  population  (15-
64 year-olds), which is the most relevant for short-
term  housing  demand,  grew  by  1.5 %  between 
2012 and 2016 (see also Gaál, 2017). 

(EUR 7 370)  a  year 

Deductibility of interest expenditure encourages 
people to build up housing equity. Although the 
deductibility of mortgage interest payments above 
DKK 50 000 
is  being 
gradually  reduced  from  33 %  in  2007  to  25 %  by 
2019, it remains one of the highest in the EU. Due 
interest  rate  environment,  most 
to 
households  pay  less  than  DKK 50 000  a  year  and 
will  not  be  impacted  by  the  reduction.  Also, 
Denmark is one of the few EU countries where tax 
deductibility  is  subject  to  neither  a  ceiling  nor  to 
special conditions.  

low 

the 

There  has  been  a  rapid  increase  in  residential 
construction.  Having  bottomed  out  in  2013  at 
3.7 %  of  GDP,  housing  investment  is  expected  to 
have  risen  to  4.7 %  in  2017,  which  is  around  its 
long-term  average,  but  still  below  the  euro  area 
average of 5.2 %. The growth has been stimulated 
by  housing  prices  rising  faster  than  construction 
costs (8) (Graph 3.2.1).  

(8)  The  ratio  of  real  housing  prices  and  construction  cost 
(housing Q) provides an indication whether it is profitable 
to build new houses. 

Source: Statistics Denmark, European Commission 

Overall  housing  price  growth  masks  sharp 
regional divergence. It has been mainly driven by 
Denmark’s  two  largest  cities.  Real  housing  prices 
surged by 48 % in Copenhagen between 2012 and 
mid-2017,  as  compared  with  24 %  nationally  and 
17 %  if  one  excludes  Copenhagen  and  Aarhus 
(Graph 3.2.2). The divergence between the capital 
city and the rest of the country is more significant 
than in other EU countries (Claeys et al., 2017). In 
particular,  prices  for  apartments  (concentrated  in 
urban  areas)  rose  sharply  between  2012  and  2016 
(46 % nationally and 62 % in Copenhagen), while 
those for family houses increased by only 18 %.  

faster 

incomes  grew 

Demand-side  factors,  policy  measures  and 
structural  issues  have  contributed  to  the  sharp 
regional divergence. Between 2012 and 2016, real 
in 
gross  disposable 
Copenhagen  (by  4.3 %  on  average)  than  in  the 
country  as  a  whole  (3 %).  Employment  has  been 
expanding  more  rapidly  in  and  around  the  capital 
than  in  other  regions.  There  are  also  strong 
urbanisation  trends  at  work:  while  Denmark’s 
population  grew  by  3 %  between  2008  and  2016, 
Copenhagen’s  grew  by  17 %.  The  property  tax 
system  has  also  fuelled  regional  housing  price 
divergence:  since  the  beginning  of  the  2000’s, 
property taxes have been capped in nominal terms 
and  growth  in  land  taxes  has  also  been  capped 
(Klein  et  al.,  2016).  As  a  result,  the  existing 
property  tax  system  has  particularly  favoured 
owner-occupied housing in the major cities, which 
has seen the biggest price rises. 

18 

051015202530350.20.40.60.81.01.21.4199219972002200720122017DKK mIndex, 2005 = 1Housing Q ratio (lhs)Housing investment (rhs) 
 
                                                           
 
3.2. Financial sector 

Graph 3.2.2:  Regional housing prices 

with  the  model  based  estimations.  The  European 
Systemic Risk Board issued a warning to eight EU 
countries, 
including  Denmark.  It  pointed  at 
medium-term vulnerabilities in the residential real 
estate  sector  due  to  increasing  housing  prices 
combined with high household debt (ESRB, 2016). 

Graph 3.2.3:  Overvaluation gap with respect to 

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

Source: FinansDanmark 

The  structure  of  the  housing  market  also 
renders  housing  prices  more  volatile  in  the 
main urban areas. In Copenhagen and Aarhus the 
proportion  of  owner-occupied  housing  stock  is 
relatively  low  compared  with  other  regions,  thus 
increased  demand  can  push  up  prices  for  such 
housing  significantly (9)  (Hviid  et  al.,  2016). 
Although  housing  construction  has  been  robust  in 
urban areas, population growth has been outpacing 
housing  stock  increase  indicating  supply  side 
inefficiencies  in  the  these  areas  (IMF,  2016). 
Zoning  codes  and  land  use  regulations  as  well  as 
high rental control appear to restrict the supply of 
these  major  metropolitan  areas 
housing 
(European Commission, 2017b).   

in 

National  average  housing  prices  are  slightly 
fundamentals.  The 
above  their  underlying 
estimated  valuation  gap (10)  shows  a  potential 
overvaluation  of  around  5 %  in  2016  (Graph 
3.2.3): while the price-to-income and price-to-rent 
indicators  have  been  increasing  above  their  long 
term  average,  prices  have  remained  more  in  line 

(9)  The remaining housing stock consists mainly of rental and 
cooperative  housing,  where  existing  tenants  would  not 
want  to  give  up  their  favourable  conditions  (which  are 
typically  below  market  prices)  thus  pushing  demand 
towards owner-occupied housing. 
(10)  The  estimated  valuation  gap 

the 
affordability gap (price-to-income deviation from its long-
term  average),  the  yield  gap  (price-to-rent  deviation  from 
from 
long-term  average);  and  estimated  deviation 
equilibrium  values  from  a  fundamental  error-correction 
model. 

is  an  average  of 

Source: European Commission  

Regional level analysis provides emerging signs 
of a potential overvaluation. The price-to-income 
indicator  at  a  national  level  has  risen  moderately 
and  is  still  well  below  the  pre-crisis  levels.  By 
contrast,  prices  to  income  of  owner-occupied 
apartments  in  Copenhagen  have  risen  sharply  and 
are  edging  towards  the  pre-crisis  levels  (Graph 
3.2.4).  Recent  analyses  warn  of  emerging 
overvaluation 
bubble-like 
phenomena  in  the  Copenhagen  and  Aarhus  areas 
(Hviid  et.  al.  2016,  IMF  2016).  A  sudden  change 
in  housing  prices  in  the  main  urban  areas  could 
negatively impact the whole country.  

potential 

and 

19 

9095100105110115120125130135140index 2010 Q1 = 100Denmark (without Copenhagen and Aarhus)Copenhagen and Aarhus-40-30-20-100102030405019951997199920012003200520072009201120132015% deviationModel-based valuations gapPrice to income vs. historical averagePrice to rent vs. historical average 
 
                                                           
 
 
 
3.2. Financial sector 

Graph 3.2.4:  Price to income ratio for owner-occupied 

apartments 

with a migrant background. Population growth has 
outpaced  the  creation  of  new  housing  properties 
and 
this  has  driven  up  rents  and  reduced 
accessibility  to  the  private  rental  market  for  these 
income groups.  

Household indebtedness 

price 

steady 

Despite 
growth, 
housing 
households have continued to reduce their debt 
levels.  Average  annual  growth  of  lending  to 
households  has  hovered  around  2 %  since  2010 
(Graph  3.2.8).  As  a  result,  households  have 
undergone  passive  deleveraging,  where  benign 
credit  demand  and  supply  conditions  facilitate  a 
gradual decline of debt driven by nominal growth 
in  the  economy.  The  ratio  of  household  debt  to 
disposable  income  fell  from  a  peak of 298.5 %  in 
2009 to 260.1 % in 2016, while household debt to 
GDP  fell  from  142.5 %  of  GDP  in  2009  to 
129.3 %  in 2016.  Lending by  domestic  banks  and 
nominal  GDP 
that 
developments 
households  continued  to  reduce  debt  relative  to 
GDP  in  2017  to  around  127%  of  GDP  (Graph 
3.2.5).    

suggest 

Graph 3.2.5:  Household debt 

*: European Commission estimate. 
Source: Eurostat 

Despite 
the  ongoing  deleveraging,  gross 
household  indebtedness  in  Denmark  remains 
the  highest  in  the  EU.  Due  to  strong  tax 
incentives,  households  save  in  pension  schemes 
and housing equity rather than reducing their gross 
debt. This has resulted in balance-sheet expansion 

Source: Statistics Denmark, European Commission 
calculations  

The authorities have taken measures to address 
regional  housing  price  imbalances.  The  2016 
planning  law  has  eased  and  simplified  zoning 
codes  and  land  use  regulations.  In  May  2017, 
Parliament  approved  a  law  on  a  new  property  tax 
system  taking  full  effect  from  2021,  which  will 
restore  the  link  between  market  property  prices 
and  tax  with  a  view  to  reducing  fluctuations  and 
improving  macroeconomic  stability.  The  new 
system  should  dampen  housing  price  rises  for 
apartments  in  the  main  urban  areas  and  support 
house prices elsewhere. 

to 

than 

spread 

started 

recently 

There  are  signs  that  housing  price  increases 
have 
from 
Copenhagen  to  the  neighbouring  areas.  Since 
2016, prices have risen faster in the regions around 
Copenhagen  and  Aarhus 
the  cities 
themselves.  High  prices  appear  to  have  prompted 
more households to move out of town and workers 
take on a commute, and this has tended to stabilise 
prices.  This  effect  will  be  probably  be  reinforced 
by  the  policy  measures  referred  to  above  and 
macroprudential  measures  targeting  the  highest 
debt-takers who are typically located in or near the 
big cities (see section on household indebtedness). 

in 

Housing  shortages  are  emerging  in  the  main 
urban  areas  experiencing  strong  urbanisation 
and  employment  trends.  These  are  affecting 
mainly 
incomes, 
including students, young professionals and people 

low-to-medium 

those  on 

20 

90110130150170190210230Index 2000 = 100DenmarkCopenhagen020406080100120140160050100150200250300350% of gross disposable income% of GDP and financial assetsDebt / gross disposable incomeDebt / GDP (rhs)Debt / financial assets (rhs) 
 
 
3.2. Financial sector 

with  Danish  households  having  not  only  the 
highest  indebtedness,  but  also  the  highest  assets 
(relative to GDP) in the EU. Large financial assets 
can  provide  a  strong  buffer  against  indebtedness, 
but  their  value  can  be  quite  volatile  and/or 
characterised  by  low  liquidity  (e.g.  in  case  of 
pension  assets),  preventing 
them  from  being 
directly  useable  against  outstanding  liabilities. 
Danish  household’  debt  is  concentrated  in  the 
hands  of  average  and  high  income  households, 
limiting the risks to financial stability but weighing 
on consumption (see also Chapter 1). 

levels. Although following the real estate crisis in 
2008 the financial sector remained resilient, but the 
impact  on  the  real  economy  has  been  significant 
for  a 
causing  suppressed  domestic  demand 
prolonged period of time.     

Graph 3.2.6:  Fundamentals-based and prudential 

benchmarks for households 

The  pace  of  Danish  households’  deleveraging 
has  slowed  down 
in  2016.  Based  on  an 
econometric  analysis  considering  debt  relative  to 
the assets and the cost of debt servicing to income, 
Danish  households’  indebtedness  could  stagnate 
around the current level (Grinderslev et al., 2017). 
A  change  in  the  macroeconomic  environment 
rising 
(such 
unemployment,  decreasing  housing  prices  or 
further  macroprudential  measures) 
could 
nevertheless trigger further consolidation effects. 

increasing 

interest 

rates, 

as 

Commission analyses suggest further household 
deleveraging  needs  in  Denmark.  Despite  its 
recent decrease, household debt is well-above what 
fundamental  drivers  would  suggest  or  above  the 
level  generally  associated  with  higher  risks  of  a 
banking  crisis(11).  These  benchmarks  argue  for 
further  deleveraging  needs  at  the  magnitude  of 
30%  to  70%  of  GDP  in  order  to  limit  potential 
macro-financial  stability 
(Graph  3.2.6). 
Forward-looking  debt  sustainability  indicators(12), 
which  take  into  account  the  fact  that  pension 
savings  cannot  be  used  to  repay  debt,  show  a 
gradually  decreasing  savings  gap,  preventing 
households from reducing their debt to sustainable 

risks 

(11)  Fundamental-based 

are 

derived 

from 
benchmarks 
regressions  capturing  the  main  determinants  of  credit 
growth and taking into account a given initial stock of debt. 
Prudential  thresholds  represent  the  debt  threshold  beyond 
which 
is  high, 
minimising the probability of missed crisis and that of false 
alerts.  See 
(2017), 
"Benchmarks for the assessment of private debt", Note for 
the Economic Policy Committee. 

the  probability  of  a  banking  crisis 

also  European  Commission 

(12)  Debt sustainability indicators correspond to the permanent 
adjustment in the savings rate to (i) reach the fundamental 
benchmark  for  debt  within  15  years  (S1)  and  (ii)  ensure 
that net financial liabilities are eventually reimbursed (S2). 
See  also  European  Commission  (2017),  "Benchmarks  for 
the  assessment  of  private  debt",  Note  for  the  Economic 
Policy Committee. 

Source: European Commission calculations 

The authorities have taken several measures to 
mitigate  the  risk  of  mortgage  borrowing. 
Macroprudential  measures  have  focused  primarily 
on households with  high  debt  levels,  interest-only 
and variable interest loans, which are considered to 
be  particularly  vulnerable  to  sudden  changes  in 
macroeconomic  conditions  (for  instance  sudden 
interest rate hikes or rising unemployment).  

Positive  developments  can  be  observed  in  the 
composition  of  the  mortgage  stock  since  2013. 
The proportion of new risky mortgage loan types is 
decreasing  gradually.  The  proportion  of  variable 
interest  loans  (with  initial  rates  fixed  for  up  to  a 
year)  in  the  stock  of  outstanding  mortgage  loans 
to  38 %, 
decreased  substantially  from  47 % 
between  2013  and  2016.  The  proportion  of 
interest-only  mortgage  loans  also  decreased  from 
57 % to 52 %. However, over half of the mortgage 
loan  stock  has  not  yet  amortised.  The  average 
annual  amortisation  rate  is  increasing  slowly,  but 
according  to  FinansDanmark  statistics,  it  was  still 
relatively low (around 2 %) in 2016. Non-variable 
interest-rate  loans  are  the  type  with  the  highest 
proportion  of  loans  with  repayments  (70 %),  as 
compared  with  variable-rate  loans  where  only 

21 

020406080100120140160199619971998199920002001200220032004200520062007200820092010201120122013201420152016% of GDPPrudential thresholdFundamentals-based benchmarkHousehold debt 
                                                           
 
3.2. Financial sector 

Graph 3.2.7:  New mortgage loans with loan-to-income 

ratio above four 

Source: Danmarks Nationalbank (2017) 

have 

adopted 

authorities 

new 
The 
macroprudential  measures  to  restrict  risky 
loan taking.  New  guidelines  that  entered  into 
force  from  the  beginning  of  2018  will  affect 
households that wish to obtain a loan with an LTI 
ratio  above  four  together  with  a  loan-to-value 
(LTV)  ratio  above  60 %.  Deferred  amortisation  is 
available  only  for  borrowers  on  mortgages  with 
interest  rates  fixed for  the  entire  loan  term.  These 
measures  aim  to  reduce  further  the  interest rate 
sensitivity  of  highly  indebted  borrowers.  Further 
amortisation  requirements  (for  instance  also  in 
case  of  high  LTIs  with  variable  interest  rates) 
nevertheless could further reduce vulnerabilities of 
highly 
reduce  high 
indebtedness levels. The balance sheet adjustment 
is  a  relatively  long  process  for  highly  indebted 
households, as suggested by the current depressed 
consumption  levels  almost  10  years  after  the 
housing bubble burst (Hviid and Kuchler, 2017). 

indebted  borrowers  and 

the  outstanding  amount 

is  with 
38 %  of 
repayments 
(Danmarks  Nationalbank,  2017b). 
These  positive  changes  are  attributable  to  the  low 
the  mortgage  banks’  fee 
interest  rates  and 
structure,  as 
the 
response 
requirements of the macroprudential measures.  

revised 

to 

in 

Table 3.2.1:  Change in the composition of mortgage loan 
stock to households 2013-2016 

Source: Eurostat and FinansDanmark 

Danish  households’  debt  servicing  ratio 
is 
currently  at  historically  low  levels,  but  still 
represents one of the highest in the EU. The debt 
servicing  ratio (13)  adjusted  for  the  proportion  of 
interest-only  loans  declined  significantly  from 
19.8 %  of  disposable  income  in  2008  to  9.7 %  in 
2016,  helped  by  a  marked  decline  in  the  interest 
payments  from  14.6 %  of  disposable  income  in 
2008  to  3.5 %  in  2016.  Given  the  still  high  debt 
remain 
ratio,  Danish  households 
servicing 
vulnerable to sudden changes to interest rates and 
income shocks. As a result, the high share of risky 
loans represents a macro-economic risk.  

in 

in 

42.3 % 

vulnerability  due 

By  contrast,  the  composition  of  new  household 
mortgage  loans  suggests  a  further  gradual 
increase 
to  high 
indebtedness.  The  proportion  of  loans  with  very 
high  loan-to-income  (LTI)  levels  increased  from 
22.8 % in 2013 to 27.9 % in 2017 and from 28.1 % 
(Danmarks 
to 
Nationalbank,  2017c).  Thus 
the  Copenhagen 
housing market appears to be more vulnerable than 
the  rest  of  the  country  to  sudden  change  of 
macroeconomic  environment.  The  combination  of 
high  borrowing  high  interest  rate  sensitivity  and 
potentially overvalued housing prices increases the 
risk  that  even  a  small  rise  in  interest  rates  could 
trigger housing price falls.  

Copenhagen 

(13)  The  debt  servicing 

ratio 

is  calculated  using 

the 

methodology outlined in Drehmann et al., (2015).  

22 

 Outstanding loans (in %)20132016Household indebtedness (% of disposable income)274.5260.1Household indebtedness (% of GDP)133.3129.3Average loan-to-value Ratio (LTV)74.1 67.4Proportion of variable interest rate loans47.137.8Proportion of non-amortised loans5752Amortisation rate 1.72.00102030405060199920012003200520072009201120132015% of totalDenmarkCopenhagen cityCopenhagen area 
 
 
 
                                                           
 
3.2. Financial sector 

Table 3.2.2: 

Financial soundness indicators 

* ECB aggregated balance sheet: loans excluding to government and monetary financial institutions (MFI) / deposits 
excluding from government and MFI 
** For comparability only annual values are presented 
NFC: non-financial corporations 
HH: households 
Source: ECB 

3.2.2.  FINANCIAL SECTOR STABILITY  

average  growth  rates  are  not  a  matter  of  concern 
for financial stability at the current juncture.  

ratio  was  21.2 % 

the  fully  phased-in 

Denmark’s  banking  sector  is  stable  and  well 
capitalised.  In  June  2017,  the  average  tier-1 
capital  adequacy  ratio  was  18.9 %  and  the  total 
capital  adequacy 
(Table 
3.2.2). (14)  Banks  have  ample  access  to  liquidity 
liquid 
and  comply  with 
coverage  ratio  (LCR)  requirement.  Impairments 
have been decreasing (see coverage ratio in Table 
3.2.2)  and  banks  were  able  to  release  some  loan  
restore 
loss  provisions.  This  helped 
profitability to levels similar to the best in the EU 
(see return on equity and return on assets in Table 
3.2.2).  The  average  ratio  of  non-performing  loans 
(NPLs) has dropped in recent years, from 5.1 % in 
2014  to  2.9 %  in  mid-2017.  The  NPL  ratio  for 
corporate  exposures,  which  at  4.5 %  is  relatively 
high  for  the  Nordic  region,  mainly  reflects  past 
defaults  in  the  agricultural  sector,  concentrated  in 
several smaller banks. Farm restructuring is going 
on at a slow pace.  

them 

is  moderate.  Lending 

Credit  growth 
to 
businesses  reached  4 %  annual  growth  in  early 
2017.  Credit  to  households  has  been  relatively 
stable  in  recent  years.  In  June  2017,  mortgage 
credit  was  growing  by  1.7 %  (Graph  3.2.8).  Such 

(14)  In  December  2017,  the  Basel  Committee  on  Banking 
Supervision  endorsed  a  package  of  amendments  to  the 
Basel III framework of prudential standards for banks. The 
Basel  agreement  will  have  implications  for  Danish  banks, 
notably as capital requirements for the major banks will be 
influenced  by  the  composition  of  assets  and  determined 
more by standardised approaches.  

Graph 3.2.8:  Credit growth 

Source: ECB 

(a 

set  of 

reports).  The 

Macroprudential  measures  are  being  stepped 
up  amid  solid  housing  price  growth.  Denmark 
has  taken  a  series  of  measures  since  2010  (see 
previous  country 
‘supervisory 
diamond’ 
five  macroprudential 
for  commercial  banks  will  be 
benchmarks) 
in  2018.  The  new  supervisory 
strengthened 
diamond  for  mortgage  banks  will  be  phased  in 
from 2018 and be in full force by 2020. Denmark 
has  also  differentiated  some  macroprudential 
measures  between  the  agglomerations  and  the 
other  areas.  For  example,  in  2016,  the  financial 
supervisory 
‘seven  best 
practices’  for  mortgage  lending  in  high growth 

authority 

adopted 

23 

-5-4-3-2-1012345Jan-12May-12Sep-12Jan-13May-13Sep-13Jan-14May-14Sep-14Jan-15May-15Sep-15Jan-16May-16Sep-16Jan-17May-17y-o-y %Total private Non-financial corporationsHouseholdsMortgage credit(%)20102011201220132014201520162017Q2Non-performing debt3.13.03.93.95.14.03.42.9Non-performing loans----5.13.93.32.9Non-performing loans NFC----10.27.05.44.5Non-performing loans HH----2.92.72.62.4Coverage ratio23.818.143.644.031.135.227.325.6Loan to deposit ratio*305.6306.2295.4292.4280.5277.3266.0256.7Tier 1 ratio14.114.916.717.316.217.618.418.9Capital adequacy ratio16.216.918.719.218.219.820.721.2Return on equity**2.40.62.04.44.76.89.7-Return on assets**0.10.00.10.20.30.40.6- 
                                                           
 
 
 
 
 
areas. The latest macroprudential measures aim to 
reduce  the  share  of  most  risky  loans  (see  section 
3.2.1).  At  the  end  of  2017,  the  Systemic  Risk 
Board  recommended  the  government  to  activate 
the countercyclical capital buffer. The government 
has  three  months  to  respond  to  recommendations 
from the Board. 

The equity market plays a relatively minor role. 
Despite  the  high  value  of  listed  stocks  relative  to 
GDP  (Graph  3.2.9),  the  equity  market  plays  a 
minor  role,  especially  among  retail  investors. 
Historical economic developments have led to the 
dominance  of  debt  financing  mainly  through 
mortgage  banks;  developed  cooperative  structures 
and  a  high  rate  of  saving  in  pension  funds.  Also, 
the  high  capital  gains  tax  constitutes  a  major 
disincentive:  the  42 %  marginal  rate  on  capital 
gains is the highest in the EU.  

Graph 3.2.9:  Business financing sources 

3.2. Financial sector 

government 

investments.  The 

equity 
also 
announced  plans  to  grant  better  tax  treatment  to 
attract  more  funds  for  Danish  undertakings  for 
collective  investment  in  transferable  securities 
(UCITS).  

in 

that 

the  fact 

launched  a 

the  EU  and 

review  of 
The  government 
the  European 
Denmark’s  participation 
banking  union.  The  review  was  announced  in 
July  2017  and  is  intended  to  run  until  autumn 
2019.  It  was  prompted  by  the  UK’s  withdrawal 
from 
the  Single 
Supervisory  Mechanism  (SSM)  has  now  been  in 
operation  for  some  time  and  there  is  a  basis  for 
assessing  how  financial  supervision  and  financial 
stability  issues have been handled. Also, focus on 
Denmark and Copenhagen as a financial centre has 
been  increasing  and  participation  is  seen  as  an 
aspect  in  this  respect.  The  government’s  review 
will  be  the  second  study  on  the  subject.  A  2015 
report  concluded  that  joining  the  banking  union 
would  in  principal  be  advantageous  for  Denmark, 
but 
to  see  how  single 
supervision and resolution  worked in practice. 

it  should  wait 

that 

Source: ECB, Ameco, Invest Europe 

the  government  came 

The  government  has 
launched  reforms  to 
strengthen  the  capital  market.    In  November 
2017, 
to  a  political 
agreement  with  two  opposition  parties  on  a 
comprehensive  package  of  reforms 
to  foster 
entrepreneurship,  including  a  set  of  measures  to 
strengthen the equity culture among entrepreneurs. 
The announced eight measures included creating a 
share  savings  account  which  would  lower  the  tax 
on capital gains from equity trading to 17 % (to be 
phased  in  from  2019)  and  tax  deductions  for 
investments  in  SMEs.  Other  aims  were  to  make 
employee 
share  programmes  and  privately 
administered  pension  plans  more  attractive  and  to 
transparency  of  pension  companies’ 
improve 

24 

0.0000.0050.0100.0150.0200.0250.0300.0350102030405060708090Listed shares; 2016Debt securities; 2016MFI loans; 2016Gross operating surplus:corporations; 2016Venture capital (rhs); 2015% of GDPDKEU% of GDP% of GDP 
 
3.3.  LABOUR MARKET, EDUCATION AND SOCIAL POLICIES 

Labour market developments 

unemployment 

The  Danish  labour  market  is  performing  very 
well with high employment, low unemployment 
flexicurity.  The 
and  a  high  degree  of 
employment rate has risen steadily since 2012 and 
in  2016  it  returned  to  pre-crisis  levels  (77.4  %)  - 
well above the EU average (71.7 %). Employment 
growth  has  been  driven  by  private  sector 
employment,  particularly  in  the  services  sector. 
Unemployment  fell  to  5.8  %  in  2017  and  long-
term 
1.3  %. 
Nevertheless,  along  with  increasing  economic 
growth  firms  are  facing  challenges  in  recruiting 
certain  types  of  workers,  while  a  group  of  the 
population  remains  on  the  margin  of  the  labour 
market.  Denmark  has  adopted  labour  market 
reforms to promote incentives to work and thereby 
stimulate labour supply. These are also expected to 
contribute to long-term fiscal sustainability and to 
help  make  up  the  2.6  pps.  shortfall  from  the 
country’s Europe 2020 employment target (80 %). 

dropped 

to 

As a result of high economic activity, there is a 
growing shortage of skilled labour. Around 8 % 
of Danish firms reported that they had recruitment 
problems  in  the  autumn  of  2017  (Danish  Agency 
for  Labour  Market  and  Recruitment,  2017).  The 
overall  number  of  unsuccessful 
recruitments 
(approx.  20 000  in  autumn  2017)  is  thus  far  from 
the  pre-crisis  level  (approx.  66 000  in  autumn 
2007),  but  the  situation  appears  to  be  worse  in 
some  sectors  than  in  others.  At  the  end  of  2017 
around  30  %  of  construction  firms  reported  a 
shortage of skilled workers; this is the highest level 
since  2007  (Graph  3.3.1).  The  ICT  and  services 
sectors are also reporting a shortage of workers.  

training 

A  key  challenge  is  to  increase  participation  in 
vocational  education  and 
(VET) 
programmes.  In  2017  around  18.5  %  of  Danish 
students took this option, which remains below the 
2025 target under the 2015 VET reform, i.e. 30 % 
of  a  youth  cohort  taking  up  VET  directly  after 
compulsory  schooling  (Ministry  of  Education, 
2014).  One  major  issue  has  been  a  shortage  of 
apprenticeship  places,  but  a  tripartite  agreement 
reached in 2016 and entering into force in January 
2018  is  expected  to  help  progress  towards  the 
national  2025  goal.  It  should  ensure  that  8 000-
10 000 new places are established by 2025, so that 
the  vast  majority  of  the  VET  students  (90  %)  are 

guaranteed an apprenticeship. This agreement will 
enter into force in January 2018 and is expected to 
help progress towards the national 2025 goal. 

Graph 3.3.1:  Companies reporting shortage of labour 

Source: Statistics Denmark 

lower 

The 
labour  market  performance  of 
persons  with  a  migrant  background,  especially 
those  born  outside  of  the  EU,  remains  a  key 
challenge.  In 2016, the employment rate for non-
EU  born  participants  was  63.4  %,  i.e.  15.7 
percentage  points  below  that  for  those  born  in 
Denmark  (79.1  %)  (see  Graph  3.3.2).  This  gap, 
which  is  one  of  the  widest  in  the  EU  and  has 
worsened  since  2008, 
is  driven  by  higher 
unemployment rates among non-EU born men and 
women.  For  (non-EU  born)  women  it  is  also 
caused  by  a  much  lower  activity  rate  (67.1 % 
versus  80.3 % 
for  native-born  women). The 
generally lower level of education among the non- 
EU  born  is  a  driver  but  only  partly  explains 
differences in labour market performance (OECD, 
2014),  as  they  have  lower  probability  of  being 
employed  even  after  adjustment  by  individual 
characteristics  (level  of  education,  literacy  levels, 
gender  and  age).  Over-qualification  among 
recently  arrived  migrants  was  over  10  percentage 
points  higher 
to 
2006/2007,  indicating  increasing  problems  with 
the  jobs  occupied  by  non-EU  born  workers  vis-à-
vis their qualifications (OECD, 2017). This may be 
driven by issues related to recognition of diplomas, 
insufficient  language  skills  or  lack  of  network 
(Schultz-Nielsen and Skaksen 2017). 

in  2014/2015  as  compared 

25 

05101520253035404550%ConstructionServicesManufacturing 
 
 
3.3. Labour market, education and social policies 

Box 3.3.1:  Monitoring performance in light of the European Pillar of Social Rights 

The  European  Pillar  of  Social  Rights,  proclaimed  on  17  November  2017  by the European  Parliament,  the 
Council  and  the  European  Commission,  sets  out  20  principles  and  rights  to  benefit  citizens  in  the  EU.  In 
light of the legacy of the crisis and changes in our societies driven by population ageing, digitalisation and 
new ways of working, the Pillar serves as a compass for a renewed process of convergence towards better 
working and living conditions. 

Denmark performs well on the indicators of the Social Scoreboard (1) supporting the European Pillar 
of  Social  Rights.  This  reflects  Denmark’s  advanced  welfare  model,  including  its  focus  on  active  labour 
market policy, strong social dialogue and flexicurity. Employment rates are high, unemployment is declining 
and  the  rate  of  young  people  neither  in  employment  nor  in  education  or  training  is  low.  The  strong 
involvement  of  social  partners  in  decision-making  contributes  to  high  participation  rates  in  active  labour 
market policies. 

the 

levels.  Addressing 

is  of  high  priority 

Around  71  %  of  individuals  have  at  least 
basic  digital  skills.  The  proportion  has, 
however, fallen in recent years – although from 
spread  of 
high 
digitalisation 
the 
to 
government. The newly established ‘Disruption 
Council’  focuses  on  how  to  adjust  the    future 
workforce to technological change and the 2017 
collective  agreement  on  adult  education  and 
training  (see  Section  3.3)  earmarked  funds  for  
digital skills training.  

the  strong 

In  spite  of 
labour  market 
performance  and  a  high  degree  of  social 
inclusion,  certain  groups  remain  on  the 
margin  of  the  labour  market.  This  concerns 
people  with  a  migrant  background,  young 
people neither in employment nor in education 
or  training  and  people  with  reduced  work 
capacity. The gap to Denmark's national Europe 
2020  target  in  the  area  of  poverty  and  social 
exclusion  (reducing  the  number  of  persons 
living in low work intensity households with 22 
000 by 2020) is widening. 

The  outcome  of  the  tripartite  agreement  on 
Labour Market Integration (2016), targeting 
those  born  outside  of  the  EU,  shows  some 
positive  first  results.  The  intensified  focus  on 
early  intervention  and  job-oriented  measures  has  resulted  in  an  increasing  number  of  recently  arrived 
refugees entering into work. The 2-year basic integration education (IGU) programme is based on 20 weeks 
of  full-time  training  (Danish  language  and  vocational  training)  combined  with  32-37  hours  of  work  per 
week. The participants are compensated at the level of vocational education programmes and a cash bonus 
scheme applies for firms which recruit refugees in IGU contracts. 

1   The  Social  Scoreboard  includes  14  headline  indicators,  of  which  12  are  currently  used  to  compare  Member  States 
performance.  The  indicators  "participants  in  active  labour  market  policies  per  100  persons  wanting  to  work"  and 
"compensation  of  employees  per  hour  worked  (in  EUR)"  are  not  used  due  to  technical  concerns  by  Member  States. 
Possible alternatives will be discussed in the relevant Committees. GDHI: gross disposable household income 

26 

Early leavers from education and training (% of population aged 18-24)Better than averageGender employment gapBetter than averageIncome quintile ratio (S80/S20)Better than averageAt risk of poverty or social exclusion (in %)Best performersYouth NEET (% of total population aged 15-24)Best performersEmployment rate (% population aged 20-64)Best performersUnemployment rate (% population aged 15-74)Better than averageGDHI per capita growth Better than averageImpact of social transfers (other than pensions) on poverty reductionBest performersChildren aged less than 3 years in formal childcareBest performersSelf-reported unmet need for medical care Better than averageIndividuals' level of digital skillsGood but to monitorSocial protection and inclusionDynamic labour markets and fair working conditionsEqual opportunities and access to the labour marketDENMARKMembersStates'areclassifiedaccordingtoastatisticalmethodologyagreedwiththeEMCOandSPCCommittees.ThemethodologylooksjointlyatlevelsandchangesoftheindicatorsincomparisonwiththerespectiveEUaverages,andclassifiesMemberStatesinsevencategories(from"bestperformers"to"criticalsituations").Forinstance,acountrycanbeflaggedas"betterthanaverage"iftheleveloftheindicatorisclosetoEUaverage,butitisimprovingfast.Formethodologicaldetails,please consult the draft Joint Employment Report 2018, COM (2017) 674 final.NEET:neitherinemploymentnorineducationortraining;GDHI:grossdisposablehousehold income 
 
 
 
3.3. Labour market, education and social policies 

the 

9.3  %  in  2013;  it  has  since  then  fallen  to  7.3  % 
along  with 
increased  economic  activity, 
especially in the private sector, but remains higher 
than  the  overall  unemployment  rate  (5.8  %  in 
2017). 

four  years 

initiatives  over 

A  tripartite  agreement  on  adult  education  and 
training  between  the  government  and  social 
partners  (October  2017),  aims  to  improve  the 
targeting and flexibility of upskilling. Funding of 
DKK 2.5 billion (0.1 % of GDP) will be allocated 
to 
(2018-2021), 
including DKK 400 million for a ‘transition fund’ 
targeting  low-skilled  and  skilled  workers.  The 
overall  goal  is  to  up-  or  re-skill  workers,  in  line 
with  current  and  future  labour  market  demand.  In 
pathways 
the 
recommendation, 
also 
are 
expected  to  help  adults  who  lack  basic  literacy 
skills to find a job. 

upskilling 
initiatives 

the 
these 

context 

of 

access 

‘Non-standard’  workers’ 

The proportion of self-employed people is 7.8 % 
which  is  lower  than  the  EU  average  of  15.0  % 
(2015). 
to 
occupational schemes depends on whether they are 
covered  by  collective  agreements;  this  applies  to 
80%  of  the  employed  people.  The  self-employed 
can  join  unemployment  insurance  schemes  on  a 
voluntary basis. In May 2017, Denmark adopted a 
new  unemployment  insurance  scheme  for  the 
self-employed  and  people  in  non-standard  jobs  to 
improve coverage for the growing number of new 
and combined forms of employment. It is still too 
soon to assess this scheme. 

future’ 

‘partnership 

for  Denmark’s 

The  government  and  the  social  partners  have 
established a ‘Disruption Council’  to adapt the 
Danish  labour  market  to  the  collaborative 
economy  and  the  spread  of  digitisation.  This 
new 
is 
composed  of  a  wide-ranging  group  of  ministers, 
social partners, business leaders and experts. Their 
main  task  is  to  develop  a  strategy  whereby 
digitisation, 
intelligence 
robots  and  artificial 
improve welfare, while at the same time preparing 
the  labour  market  for  a  future  in  which  many 
traditional  jobs  are  expected  to  disappear.  The 
Disruption  Council  became  operational  in  May 
2017 and will sit until the end of 2018. 

The proportion of the workforce specialising in 
ICT  (4.2  %)  has  been  steady  over  the  last  few 
years.  While  above  the  EU  average,  it  needs  to 

Foreign  workers  may  help  ensure 
labour 
supply,  especially  in  the  light  of  the  emerging 
shortages  of  certain  types  of  workers.  The  role 
of foreign labour has changed in recent years and it 
is becoming increasingly important for the Danish 
economy. The total number of full-time employed 
persons  reached  2.2  million  in  the  second  quarter 
of 2017, up by 140 000 from 2010. The number of 
foreign  workers  rose  by  130  000  in  2010  to  200 
000 in 2017 (8.9 % of the total) thus amounting for 
around  half  of  the  increase  in  total  employment 
(Statistics  Denmark  and  jobindsats.dk).  While 
most foreign workers are nationals of neighbouring 
countries,  the  proportion  of  full-time  employed 
people  from  non-EU/EEA/EFTA  countries  in  the 
total  number  (foreign  and  Danish  nationals), 
increased only slightly from 2.2 % to 3.2 %. In the 
construction sector, the number of foreign workers 
sector  increased  by  about  6 500  persons  between 
2013  and  2016,  reaching  a  proportion  of  7.8 % 
(only  slightly  above  the  6.8 %  average  of  all 
sectors).  

Graph 3.3.2:  Employment and unemployment, by country 

of birth 

Source: Eurostat 

The number of older workers is increasing, but 
some  new  graduates  are  facing  challenges  in 
entering  the  labour  market.  Between  2008  and 
2015  the  participation  rate  for  people  aged  60-64 
increased  by  9.8  percentage  points.  In  2015  over 
half of this group (56 %) was active on the labour 
market. On  the  other hand, unemployment  among 
people aged 25-29 increased from 3.6 % in 2008 to 

27 

0102030405060708090200820162008201620082016NationalsEU-28Third countries% of  population 20-64EmployedUnemployed 
 
3.3. Labour market, education and social policies 

grow  in  order  to  improve  the  capacity  of  the 
Danish  economy  to  innovate  and  grow  further. 
Denmark  does  not  yet  have  an  overarching 
strategy  for  digital  skills  (national  coalitions  for 
digital  skills  and  job),  but  has  adopted  several 
strategies  that  run  in  parallel  to  tackle  the  future 
needs for ICT specialists in the workforce. Digital 
skills  will  be  incorporated  in  all  sectors  of  the 
economy and the role of municipalities will be key 
to  ensuring  the  sustainability  of  the  welfare  state 
system. 

Social policy and inclusion 

(AROPE)  decreased 

The  proportion  of  people  at  risk  of  poverty  or 
social  exclusion 
from 
18.3 % in 2013 to 16.7 % in 2016 (all ages). This 
is well below the EU average of 23.4 % reflecting 
the  improving  labour  market  and  the  continued 
effectiveness of Denmark’s social security system. 
The  situation  remains  critical  for  non  EU-born 
residents, 36.4 % of whom were at risk of poverty 
or  social  exclusion  in  2016.    This  is  more  than 
twice  the  rate  of  Danish-born  residents  (16.5  %). 
The gap is driven partly by higher in-work poverty 
rates  among  the  non-EU  born  (17.2 %)  than 
natives  (4.1 %).  The  status  of  most  challenges 
group  has  shifted  from  women  (30.1  %)  towards 
men (42.7 %). Further, the AROPE rate among the 
elderly  (65+)  has  halved,  from  18.4  %  in  2010  to 
9.2  %  in  2016,  although  it  has  come  down  more 
slowly  since  2013  when  it  stood  at  10.8  %.  On  a 
more  positive  note,  the  rate  of  severe  material 
deprivation decreased from 3.6 % in 2013 to 2.6 % 
in  2016  and  remains  well  below  the  EU  average 
(7.5 % in 2016). 

From 2008 to 2017 the number of people living 
in low work intensity households increased with 
62 000 (+18 %) although with declines since its 
2014 peak. This development implies that the gap 
to  the  national  Europe  2020  target  in  the  area  of 
poverty and social exclusion (reducing the number 
of persons living in low work intensity households 
with 22 000 by 2020) is far from being closed. As 
regards the 10 social mobility goals established in 
May  2016  to  give  greater  direction  and  emphasis 
to  social  policy,  Denmark  is  making  progress  on 
most  but  lagging  behind  on  others,  such  as 
increasing  the  proportion  of  young  marginalised 
people  starting  an  upper  secondary  education. 
Furthermore,  the  number  of  homeless  people  is 
increasing from 5 000 in 2009 to 6 600 in 2017. 

(October  2016)  and  a 

The  number  of  social  assistance  benefit 
recipients decreased by 8.6 % in the 15 months 
prior  to  June  2017. (15)  This  may  be  due  to  the 
increased  economic  activity,  but  also  to  recent 
measures  aiming  at  increasing  the  incentives  to 
work  (‘make  work  pay’).  These  include  a  ceiling 
on social assistance benefits and a 225-hour work 
lower 
requirement 
integration  benefit  (September  2015)  for  those 
non-EU  citizens  who  have  not  been  residing  in 
Denmark  for  more  than  seven  of  the  last  eight 
years.  It  is  still  too  soon  to  assess  the  long-term 
impact  of  these  changes,  but  initial  analyses 
suggest  that  they  are  working  as  intended  and 
helping  to  increase  labour  force  participation, 
partly 
labour  market  and 
concerns 
economic 
unemployment  benefits,  Denmark  ranks  well 
above  the  EU  average  for  indicators  related  to 
coverage  and  adequacy(16).  In  particular,  duration 
of  benefits  is  significantly  longer  than  the  EU 
average,  with  maximum  benefit  duration  of  2 
years.  Denmark  also  performs  well  for 
the 
indicators related to adequacy of minimum income 
benefits. 

to  strong 
performance. 

thanks 

As 

In  2016 

Poverty  and  income  inequality(17)  remain  low, 
but  some  groups,  such  as  tenants  on  low 
income 
incomes,  still  face  risks. 
inequality  (measured  by  the  income  share  ratio 
S80/S20) was 4.1, i.e. well below the EU average 
(5.2)  (18).  However,  in  comparison  with  other  EU 
countries,  a  high  percentage  of  those  in  risk  of 
poverty  (68.5  %  in  2016)  are  tenants  renting  at 
market  rents.  As  rents  continue  to  rise  faster  than 
inflation, the steady erosion of affordable housing 

(15)  From  156  500  to  143  000  fulltime  persons  in  the  period 
April  2016  to  June  2017.  This  includes  recipients  of 
educational  allowance  (uddannelseshjælp)  and  integration 
benefits  (Integrationsydelsen).  The  data  are  seasonally 
adjusted. 

(16)  According  to  the  benchmarking  exercise  in  the  area  of 
unemployment  benefits  and  active  labour  market  policies 
conducted  within  the  EMCO  Committee.  See  the  draft 
Joint Employment Report 2018 for details. 

(17)  The  Gini-coefficient  is  an  indicator  which  measures  the 
inequality  of  an  income  distribution.  For  incomes  the 
coefficient  is  bounded  by  0  (no  inequality)  and  1 
(maximum  inequality),  for  wealth  the  coefficient  can  take 
values  above  1  as  households  may  have  negative  net 
wealth.  The  income  quintile  share  ratio  measures  the 
incomes of the richest 20 % of the population compared to 
the incomes of the poorest 20 %. 

(18)  The  share  of  income  to  the  richest  20  %  of  households 
remained 4.1 times greater than that of the poorest 20 % of 
households in 2016. 

28 

 
                                                           
3.3. Labour market, education and social policies 

in  mastering 

difficulty 
language 
remains  a  significant  entry  barrier  regardless  of 
educational level. Other challenges such as cultural 
differences, may also play a role.  

the  Danish 

education 

integration 

The  basic 
(IGU) 
programme got off to a slow start, but appears 
to be catching up.  At the end of 2017 the number 
of  IGU  contracts  signed  reached  1 000.  The 
two-year  programme  is  structured  around  32-37 
hours of work per week, combined with 20 weeks 
of  full-time  education  (Danish  language  lessons 
and professional/vocational courses). An employee 
in  an  IGU  position  is  paid  according  to  the  wage 
rates  for  vocational  training  programmes  (EGU) 
rights  as  permanent 
and  enjoys 
leave, 
holiday 
paid 
employees 
unemployment  benefits  and  pension  schemes). 
Under  a  cash  bonus  scheme  companies  that  enter 
into  IGU  contracts  and  hire  refugees  receives 
DKK 20 000  (EUR  2 700)  after  six  months  of 
employment  and  additional  DKK  20 000  on 
completion  of  the  two year  programme.  In  2018, 
social  partners  will  decide  on  the  basis  of  an 
evaluation  whether  or  not  to  continue  the  IGU 
scheme. 

the  same 
(including 

affect 

native-born 

The  challenges  of  labour  market  integration 
residents  with 
also 
foreign-born  parents.  This  group  has  weaker 
employment outcomes than those with native-born 
parents  and  the  situation  has  not  improved  since 
2007  (OECD,  2015).  They  also  have  more 
difficulty  finding  a  job  than  natives  without  a 
migrant 
equivalent 
education.  

background 

and  with 

Education and skills 

Despite  reductions  in  spending  since  2015, 
Denmark  remains  one  of  the  EU’s  biggest 
in  education.  Education  spending 
investors 
amounted  to  7.0 %  of  GDP  in  2015,  as  compared 
with the EU average of 4.9 %.  

places is a burden on such households, resulting in 
a housing cost overburden rate of 15.0 % in 2016, 
well  above  the  EU  average  of  11.1  %(19).  Many 
tenants  are,  however,  students  with  prospects  of 
higher incomes. 

Integration policy 

While  the  proportion  of  recently  arrived 
refugees in the total population is just above the 
EU average, it remains significantly lower than 
in Nordic neighbouring countries. (20) A number 
of recent initiatives to get this group into work are 
being  implemented  in  tandem  with  restrictive 
measures  aimed  at  limiting  the  influx  of  asylum 
seekers. 

rate  among 

the  employment 

In the second quarter of 2017, around 24.4 % of 
newly arrived refugees aged 16-64 were in paid 
employment.  This  corresponds  to  around  6 000 
refugees who have arrived within the past 5 years 
(Statistics Denmark). Between June 2015 and June 
2017 
refugees 
increased  by  15  percentage  points,  mainly  driven 
by  men  entering  the  labour  market.  Most  of  the 
refugees  take  jobs  in  the  services  sector  (hotels, 
industries).  While 
restaurants  and  cleaning 
employment  has 
the  higher 
employment  rate  among  refugees  may  also  be 
linked  to  them  being  assessed  as  ‘ready-to-work’ 
(a key element of the 2016 tripartite agreement on 
Labour  Market 
lower 
Integration)  and 
integration benefit (September 2015). 

risen  overall, 

the 

There appears to be a skills mismatch between 
a  large  proportion  of  newly  arrived  refugees 
and  current  labour  market  needs.  A  study 
suggests  that  60  %  of  recently  arrived  refugees 
have  primary  school  education,  15  %  have  upper 
secondary  education  and  13  %  have  higher 
education 
and 
Integration,  2016).  Only  around  10  %  have  a 
vocational  education  (VET)  which  is  in  high 
labour  market.  The 
demand  on 

Immigration 

the  Danish 

(Ministry 

of 

(19)  The  housing  cost  overburden  rate  is  defined  as  the 
percentage  of  the  population  living  in  households  where 
the  total  housing  costs  ('net'  of  housing  allowances) 
represent  more  than  40  %  of  disposable  income  ('net'  of 
housing allowances). 

(20)  Between the first quarter of 2015 and the second quarter of 
2017, Denmark issued around 18 600 positive first-instance 
decisions  on  asylum  applications,  i.e.  a  ratio  of  around 
0.33 %  of  the  total  population,  as  compared  with  an  EU 
average of 0.25 % . 

Denmark  is  among  the  well-performing  EU 
countries as regards early school leaving (7.2 % 
in  2016).  Overall,  educational  outcomes  remain 
above the EU average in terms of performance and 
less  social 
equity,  and  show  comparatively 
variation (European 
2017c). 
Education  expenditure  does  not  necessarily  relate 
directly  to  education  outcomes.  Some  countries 

Commission, 

29 

 
                                                           
with  similar  spending  levels  have  worse  student 
performance, while a few with significantly lower 
spending  achieve  better  results.  In  particular, 
Denmark  has  fewer  high  achievers  than  other 
Nordic  countries  (PISA  2015  in  science:  7  %  as 
compared with 8.5% in Sweden, 13.5 % in Estonia 
and 14.3 % in Finland). Danish students in fourth 
grade  perform  above  the  international  median  in 
reading,  but  score  below  other  Nordic  countries. 
While the performance compared to 2011 declined 
slightly by 7 score points, the gender gap remained 
the  smallest  among  the  Nordic  countries  (IEA 
2017). 15 year old perform above the EU average 
in  reading  and  foreign  born  score  significantly 
worse than native born (OECD, 2016a).. 

The  integration  into  the  education  system  of 
children with a migrant background remains a 
key  challenge.  Recent  legislation  allows  for  the 
integration  of  foreign-born  young  people  into 
compulsory  school  education  up  to  the  age  of  25. 
In 2015, PISA showed that students with a migrant 
background  performed  69  points  lower  in  science 
than  students  without  migrant  background  on 
average, i.e. about two school years behind that of 
students without a migrant background. First- and 
second-generation  students  continue 
to  show 
(Greve  and 
marked  performance  differences 
for 
Krassel,  2017).  Even  after  accounting 
socio-economic  factors,  they  are  3.4  times  more 
likely  to  under  achieve  than  students  without  a 
migrant  background.  This  is  one  of  the  biggest 
gaps in the OECD (Norway’s is 2.0, Sweden’s 2.6 
and the OECD average is 2.3).  The disadvantage 
of  young  with  migrant  background  compared  to 
those  without  remains  in  Denmark  particular 
important and second generation students seem not 
to catch up. Moreover, about 20 % of native-born 
children  of  migrants  are  neither  in  education, 
employment  nor  training,  i.e.  6  percentage  points 
more than the proportion of those with native-born 
parents (OECD, 2016). 

3.3. Labour market, education and social policies 

Graph 3.3.3:  Pisa performance by immigrant status: 

underachievement in science 

Source: OECD, PISA 2015 

Participation  in  early  childhood  education  and 
care  (ECEC)  is  nearly  universal.  The  system 
covers  almost  all  children  over  four  (98.6 %). 
Moreover,  newly  arrived  refugees  are  often  not 
of 
well 
participating. (Bjørnholt  et  al,  2016).  A  reform 
package  consisting  of  24  measures  to  strengthen 
and to improve the quality of ECEC was agreed in 
June 2017. 

advantage 

informed 

about 

the 

A  number  of  broad  education  reforms  are 
aimed  at 
improving  school  outcomes  and 
raising academic standards. The 2014 reform of 
compulsory  school  (Folkeskolereform)  seeks  to: 
1) ensure 
their  full 
that  all  students  realise 
potential;  2)  reduce  the  impact  of  socioeconomic 
background  on  educational  outcomes;  and  3) 
improve student well-being and trust in educators. 
A  first  evaluation  suggests  some  progress  on  the 
second 
particularly 
disadvantaged  groups  (Ministry  of  Economic 
Affairs  and  the  Interior,  2017a),  and  improved 
motivation among students. On the other hand, the 
reform  has  been  criticised  for  reducing  teacher’s 
autonomy. 

including 

goal, 

for 

of 

the 

curricular 

A  political  agreement  has  been  adopted  on  a 
revision 
framework 
(December  2017).  The  strategy  for  national 
learning  targets  for  each  subject  (Fælles  Mål)  has 
been  criticized  for  restricting  teachers’  autonomy. 
The  agreement  includes  a  deregulation  of  the 

30 

0%10%20%30%40%50%60%EEDKIENLSEEUNon-migrantsFirst-generation migrantsSecond-generation 
 
3.3. Labour market, education and social policies 

curricular  framework  so  that  only  the  general 
content  of  each  subject  will  remain  mandatory. 
The aim of the agreement is to give teachers more 
freedom  to  plan  and  conduct  their  teaching  better 
adapted to student needs and local context.  

for 

better 

higher 

A  new  reform  of  upper  secondary  education 
seeks  to  raise  academic  standards  and  prepare 
students 
education. 
Implemented  from  the  2017/2018  school  year  it 
particularly  targets  improved  in-service  training 
for  teachers  and  heads  of  school.  Although  it  is 
accompanied  by  a  range  of  support  measures  for 
teachers  and  other  stakeholders,  teacher  unions’ 
argue that the annual reprioritisation savings in the 
period  to  2020  could  have  a  negative  impact  on 
implementation. 

The  transition  from  early  childhood  and  care 
towards primary school remains a key issue, in 
particular  for  children  born  outside  Denmark. 
This  may  be  driven  by  several  factors,  including 
the  fact  that  one  third  of  staff  in  early  childhood 
education and care are without formal pedagogical 
education.  However,  the  continuing  deterioration 
of  staff/children  ratios  may  also  have  negative 
effects  as  regards  integration  of  children  with 
migrant background.  

The  2016  tripartite  agreement  established  a 
better vocational education and training (VET) 
programme,  with  35  basic  orientations.  To 
support  the  national  2025  goal  (25 %  of  young 
people going into VET), the entry requirements for 
academic  upper  secondary  education  have  been 
raised  and  information  campaigns  have  been 
launched  to  promote  VET  among  parents  and 
students. However, the annual 2 % reduction of the 
budget  (DKK  150  million)  risk  to  negatively 
impact the implementation of the reform. 

is  widely  used 

ICT  skills  levels  are  generally  high  and  digital 
equipment 
in  the  Danish 
educational  system.  Almost  all  Danes  (95.3 %) 
are regular users of the internet and 71 % claimed 
to  have  at  least  basic  digital  skills;  this  is  well 
above  the  EU  average  of  57 %.  Around  50 %  of 

over-65  years-olds  are  digitally  skilled,  which  is 
much  higher  than  the  EU  average.  The  October 
2017  agreement  between  the  government  and 
social partners on adult education and training (see 
Section 3.3), is expected to stimulate digital skills 
training.  The  new  Danish  Committee  on 
University Education aims to ensure that education 
a 
learning 
addresses 
comprehensive strategy of digitisation in education 
seems to be lacking.  

digital 

needs, 

but 

Health policy 

Denmark’s  healthcare  spending  equates  to 
10.3 %  of  GDP,  the  sixth  highest  in  the  EU. 
Overall,  the health  system  appears  to  allocate  and 
use  resources  efficiently.  A  series  of  key  reforms 
(2007) has resulted in a reduction in the number of 
acute  care  beds  and  average  lengths  of  stay  over 
the  past  few  years,  which  has  helped  to  improve 
system.  Care 
efficiency 
coordination  for  the  growing  number  of  people 
living  with  chronic  conditions  is  a  growing 
challenge. 

throughout 

the 

in 

Denmark has the highest number of nurses per 
capita 
that  more 
the  EU,  suggesting 
specialised  work  by  nurses  (‘skills  mix’)  could 
further  improve  efficiency  across  the  system. 
Recent  efforts  on  care 
including 
‘Health  Houses’,  are  a  step  in  the  right  direction, 
but  greater  coordination  between  primary  care 
practitioners,  social  workers  and  community  care 
practitioners may be beneficial. 

integration, 

Denmark  has  a  strong  ICT  infrastructure  for 
healthcare (e-health). For instance, it is in the top 
group of countries for general practitioners and in 
hospitals  using  electronic  health  records  where  it 
boasts  the  highest  and  fourth  highest  ranking 
respectively 
(OECD/European 
Europe 
Observatory  on  Health  Systems  and  Policies, 
2017). It also has a well-established set of disease 
registries.  

in 

31 

 
 
3.3. Labour market, education and social policies 

Box 3.3.2: Policy highlights : Life-long learning 

Denmark  has  a  long-standing  tradition  of  life-long  learning.  It  is  a  key  element  in  the  Danish  flexicurity 
model,  combining  a  flexible  labour  market  and  advanced  social  protections  schemes  with  active  labour 
market policies - in particular education and training - to get people back to work. The participation rate in 
adult learning (27.7 % in 2016) is high compared to the EU average (10.8 % in 2016) and a considerable 
proportion of overall learning and competence development is employer-paid and takes place at the work 
places. The learning programmes are traditionally agreed in close partnership between the government and 
the social partners. 

Life-long learning has been an established practice for decades and its content is regularly adjusted to meet 
current  challenges  now  of  globalisation  and  technological  change.  Recent  adaptations  focus  on 
strengthening the participation of the low-skilled in adult learning (European Commission, 2017c). Adults 
above the age of 25 may participate in tailor-made programmes, the Vocational Education and Training for 
Adults (EVU), which take into account the prior education and training experience of the participant. This 
results in a shorter duration of study compared to that of a traditional VET programme for persons below 
the age of 25 of at least 6 months (10 % on average) (see Graph). 

The  EVU  provides  an  opportunity  for 
adults  with  a  compulsory  primary  and 
lower  secondary  school  (Folkeskole) 
diploma  to  pursue  a  VET  career.  It  is 
based  on  an  introductory  course  of  0-
20  weeks  (depending  on  educational 
background)  followed  by  a  major 
subject.  Participants  may 
choose 
than  100  directions 
between  more 
under  four  main  subjects;  1)  care, 
health and education, 2) administration, 
trade  and  business  services,  3)  food, 
agriculture  and  adventures  and  4) 
technology, 
and 
transportation.  These 
programmes 
mainly  targeting  low-skilled  -  both 
unemployed  an  employed  -  lead  to  a 
full  qualification  at  a  professional 

construction 

level.  

At  an  ad-hoc  basis,  the  adult  continuing  training  programmes  Labour  Market  Education  (AMU)  provide 
short-term  work-related  skills  training.  These  programmes  teach  participants  skills  and  competences  for 
specific sectors and jobs functions relevant to the labour market.  

32 

EVU for adults with min. 2 years work experienceEVU for adults with relevant educational or work experienceEVU for adults without relevant educational or work experienceTraditonal VET programme for people under 25 yearsPossible workIntroductory courseTeachingTestApprenticeship  
3.4.   INVESTMENT 

Net international investment position 

net 

international 

The  net 
investment  position 
remained broadly stable, at 53 % of GDP in the 
third quarter of 2017. This is due to the positive 
net  position  of  pension  and  insurance  funds, 
amounting  to  slightly  more  than  nominal  GDP  in 
2017  (Graph  3.4.1).  This  is  partially  offset  by 
non-financial 
negative 
corporations and mortgage banks (around 25 % of 
GDP 
in  each  case).  Despite  mortgages’  net 
external position deteriorating, foreigners’ share of 
total  financing  of  mortgages  is  limited  to  20 % 
(FinansDanmark, 2017). Domestic banks continue 
to  be  the  main  provider  of  mortgages  banks’ 
liquidity  while  domestic  pension  and  insurance 
funds is on par with that of foreigners. 

positions 

of 

Graph 3.4.1:  Net international investment position by sector 

Source: Danmarks Nationalbank 

Following  its  decline  in  2016,  the  current 
account  balance  rose  gradually 
in  2017, 
reaching  8.5 %  of  GDP  in  the  third  quarter  of 
2017.  Current  account  developments  reflect  the 
importance  of  globalisation.  The 
increasing 
external  position  of  the  economy  is  supported  by 
large Danish multinational companies, which have 
a 
shipping, 
advantage 
pharmaceuticals, toys and breweries (Autrup et al., 
investment  abroad  has 
2015).  Foreign  direct 
allowed  Danish  companies 
their 
to  service 
customers abroad to an increasing extent since the 
mid-2000’s.  This  is  reflected  in  the  increasing 
trade surplus of merchanting, and goods processed 
and sold abroad (Graph 3.4.2).  

comparative 

in 

The  primary  income  account  continued  to 
support  the  current  account,  despite  a  small 
setback since 2015. Supported by the positive net 
the  positive 
investment  position, 
international 
primary income account also benefits from higher 
returns on investment abroad than on investment in 
Denmark.  This  appears  to  be  driven  by  the 
pharmaceutical  sector,  which  generates  high 
returns  on  investment.  Isaksen  and  Kramp  (2016) 
show  that  excluding  pharmaceutical  companies, 
returns  on  investment  in  Denmark  are  similar  to 
those abroad. 

Graph 3.4.2:  Current account balance 

Source: Statistics Denmark 

fundamental 

The  current  account  balance  and  its  empirical 
norm  have  diverged  markedly  since  2009 
(Graph 3.4.3). The latter is the value of the current 
account  that  should  be  observed  on  the  basis  of  a 
characteristics. (21) 
country’s 
According  to  Commission  estimates,  ageing  and 
demographics  have  contributed  significantly  to  a 
decline  in  the  norm.  Abstracting  from  these 
developments,  it  would  be  broadly  flat,  but  still 
markedly  different  from 
the  current  account 
balance.  Caution  is  warranted  when  interpreting 
the  difference  between  the  actual  and  estimated 
norm,  as  the  interaction  of  pension  savings  and 

(21)  The  current  account  'norm’  benchmark  is  derived  from 
reduced-form  regressions  capturing  the  main  fundamental 
determinants  of 
the  saving-investment  balance  (e.g. 
demographics,  resources),  as  well  as  policy  factors  and 
also  European 
conditions.  See 
global 
Empirical 
Commission, 
account 
benchmarks:  modelling 
impact  of  demographic 
the 
variables, LIME Working Group, 24 April 2017. 

financial 

current 

2017, 

33 

-100-50050100150% of GDPHouseholdsGeneral governmentOther MFIsInvestment, pension and insurance fundsMortgage banksNon-financial corporationsTotal-20246810% of GDPIncome account and current transfersGoods and services produced in Denmark and sold abroadMerchantingGoods processed and sold abroadCurrent account balance 
 
 
 
                                                           
3.4. Investment 

efforts  to  reducing  debt  is  not  fully  captured  the 
model. 

investment,  has 
increased  alongside 
increasing housing prices (Graph 3.4.4).  

rapidly 

Graph 3.4.3:  Current account balance — current, cyclically 

adjusted and norm 

Source:  European Commission 

Net lending balance 

sector. 

lending  positions 

The  current  account  surplus  mirrors  the 
the 
sizeable  net 
of 
non-financial  private 
It  has  been 
supported  by  companies’  high 
significantly 
savings  except 
then, 
companies’  net  lending  balance  rose  gradually  to 
around  6 %  of  GDP  before  falling  in  2016  and 
2017.  Households’  net 
lending  balance  has 
increased gradually, reflecting the decrease of their 
debt (Section 1). 

in  2007-20009.  Since 

Investment 

Investment,  as  a  proportion  of  GDP,  has 
gradually  risen  to  levels  close  to  its  long-term 
average.  Public  investment  supported  economic 
activity during  the  crisis,  rising  significantly  from 
3 % of GDP in 2008 to 3.9 % in 2014. Although it 
has  gradually  declined  since  then,  in  2017  it  is 
estimated  to  have  remained  above  its  long-term 
average. Corporate  investment, on the other hand, 
has 
in 
2010-2014. Since then, its growth (as a proportion 
of  GDP)  has  been  more  muted.  Household 
investment,  which  is  by  and  large  residential 

rise  steadily,  particularly 

tended 

to 

fælles 

(Fagligt 

Although aggregate investment has returned to 
normal  levels,  investment  by  SMEs  remains 
sluggish 
forbund,  2017  and 
Regeringen, 2017). On the other hand, investment 
of  larger  companies  has  held  up  quite  well. 
Investment  by  manufacturing  companies  has 
performed  well  since  2008,  while  investment  by 
the  services  and  construction  sectors  has  been 
much weaker. 

Graph 3.4.4:  Investment by sector 

(1) Dotted lines represent period average 
Source: Eurostat 

Savings 

Aggregate saving has shown a marked increase 
of  6 %  of  GDP  since  2009,  driven  mainly  by 
public sector consolidation and the need to correct 
the  large  deficit  that  was  expected  in  2010-2014. 
Household  savings  have  also  contributed  to  the 
increase.  These  mainly  reflect  households’  efforts 
to  save  for  old  age  and  bring  down  debt. 
Households  have  continued  to  consolidate  and 
reduce  vulnerabilities  associated  with  their  large 
balance  sheets.  Several  policy  initiatives  have 
fostered  the  deleveraging  process,  including  the 
introduction  of  the  supervisory  diamond  (see 
Section  3.2).  Reduced  tax  incentives  for  pension 
savings  may  also  have  helped  to bring debt  down 
since  2010  (Andersen,  2015).  Macroprudential 
measures limiting the use of deferred amortisation 
and  variable  rate  loans  are  likely  to  support 

34 

012345678910199920002001200220032004200520062007200820092010201120122013201420152016% of GDPCurrent account balanceCyclically adjusted current account balanceCurrent account norm0510152025199619971998199920002001200220032004200520062007200820092010201120122013201420152016% of GDPHouseholdsCorporatesPublicTotal 
 
 
 
3.4. Investment 

deleveraging efforts in the future (see also Section 
3.2). 

Graph 3.4.6:  Pension contributions and accumulated 

savings 

Total  household  savings  have  been  supported 
by  high  pension  savings.  Pension  contributions 
have remained relatively stable since 2012, slightly 
above 6 % of GDP.  The  bulk  of  the  contributions 
are directed to the labour market pension schemes, 
which by 2016 spread to cover more than 90 % of 
wage earners aged between 25 and 59 years. Total 
pension savings amount to around twice the size of 
GDP and are among the highest in the EU.  

Graph 3.4.5:  Sectoral savings 

Source: FinansRådet (2016) 

Business environment 

Source: Statistics Denmark 

New  pension  schemes  have  been  introduced  to 
lower the effective marginal tax rate on pension 
savings.  Households  with  low  pension  savings 
face  high  effective  marginal  tax  rates  on  those 
savings  (see  Section  3.1).  New  pension  schemes 
were  introduced  in  2013,  to  encourage  them  to 
save 
rise, 
retirement.  While  on 
contributions  to  these  schemes  remain  limited 
(light  blue  bars  in  Graph  3.4.6).  These  schemes 
were subject to changes in 2017 which lowered the 
effective tax rates on savings (see Section 3.3.1). 

the 

for 

further 

to  ease 

initiatives 

favourable  ranking 

Despite  Denmark’s 
in 
competitiveness  surveys,  the  government  has 
the 
launched 
administrative burden for businesses. According 
to the Global Competitiveness Indicator, the Small 
Business  Act  and  the  Ease  of  Doing  Business 
Survey  Denmark  is  among  the  best  performers  in 
the  EU  (European  Commission,  2017a,  World 
Bank,  2017  and  World  Economic  Forum,  2017). 
in  delivering  a 
Its  policies  have  succeeded 
for  businesses  and 
conducive 
supporting  SMEs.  It  is  easy  to  start  and  run  a 
business in Denmark, with little bureaucracy in the 
start-up  and  operational  phases,  partly  thanks  to 
to 
digital  administration,  which  has  helped 
minimise  the  administrative  burden.  In  addition, 
the  government  maintains  its  systematic  efforts  to 
remove unnecessary red tape. Extensive plans have 
been made to simplify business-related legislation. 

environment 

Weak competition has been identified as one of 
the  main  obstacles 
to  growth.  The  new 
Productivity  Board  sees  it  as  one  of  the  main 
reasons  for  weak  productivity  growth  (Danish 
Economic  Councils,  2017).  While  a  number  of 
initiatives  had  been 
strengthen 
competition and productivity, there is still room for 
improvement  in  some  areas.  These  include  the 
retail  sector,  where  the  Productivity  Board  sees 
further scope for strengthening competition despite 

taken 

to 

35 

051015202530351999200020012002200320042005200620072008200920102011201220132014201520162017Q3% of GDPCorporatesGeneral governmentHouseholdsTotal0501001502002500123456781995199619971998199920002001200220032004200520062007200820092010201120122013201420152016% of GDP% of GDPotherMFIsInsurance and pension fundsAccumulated saving, rhs 
 
 
3.4. Investment 

online and 15 % of their turnover coming from this 
type  of  commerce  (EU  averages:  17 %  and  10 %, 
respectively). In parallel, almost half of all Danish 
information sharing 
firms  have  an  electronic 
system (EU: 34 %).  Adoption rates for e-business 
technologies, such as e-invoices (64 %) and cloud 
services  (50 %)  services  are  among  the  highest  in 
the EU. 

In  January  2018  the  government  launched 
Strategy  for  Denmark’s  Digital  Growth  that 
consists  of  38  initiatives.  The  strategy  aims  at 
bringing  Denmark  at  the  forefront  of  digital 
development  and  to  create  the  conditions  for 
Danish  companies  to  exploit  new  technologies  to 
generate  growth.  The  main  initiatives  are:  i) 
Digital  Hub  Denmark;  ii)  SME:Digital;  iii)  The 
Technology  Pact;  iv)  Strengthened  Computational 
Thinking  in  Elementary  School;  v)  Data  as  a 
Driver  of  Growth;  vi)  Agile  Regulation  for  New 
Business  Models;  and  vii)  Strengthened  Cyber 
for 
Security 
Denmark’s  Digital  Growth 
on 
recommendations  from  the  Digital  Growth  Panel 
from  May  2017  and  the  Danish  Government’s 
Disruption  Council.  It  allocates  DKK  1  billion 
(0.05 % of GDP) for initiatives running from 2018 
to  2025,  according  to  a  political  agreement  with 
the  Danish  People’s  Party  and  the  Danish  Social-
Liberal  Party.  The  allocation  should  be  seen  as 
seed  capital  as  there  will  also  be  private  funding 
for several of the initiatives.  

in  Companies.  The  Strategy 
based 

is 

digital  welfare.  Despite 

strategy  will 
An  ambitious  e-government 
strengthen 
the 
widespread  use  of  e-services  (by  92 %  of  Danish 
internet users, as compared with 57 % at EU level) 
and  the  availability  of  electronic  pre-filled  forms 
(scoring  71/100,  as  compared  with  53/100  at  EU 
level),  the  government  is  currently  implementing 
an  even  more  ambitious  e-government  strategy 
strategy)  aimed  at 
(the  2016-2020  digital 
improving  the  productivity  and  efficiency  of  the 
public  sector  and  ensuring  that  public  digital 
services 
and 
businesses. It also focuses on specific themes such 
as  digital  welfare  and  a  better  user  experience  for 
households and businesses. 

create  value 

individuals 

for 

recently 

the 
adopted  Planning  Act.  The 
Productivity  Board  highlighted  competition  issues 
in a number of other sectors, including finance and 
recommended 
transport.  The  Board 
strengthening  competition  by  lifting  ownership 
restrictions  in  some  professions  (doctors,  dentists, 
pharmacies and lawyers). It also discussed how the 
taxation  system  and  regulation  could  support 
growth. 

also 

Access  to  finance  is  improving,  but  remains  a 
challenge  for  small  and  high-risk  businesses. 
The  three  main  sources  of  finance  for  Danish 
SMEs are credit lines (relevant for 61 % of SMEs), 
leasing  (51 %)  and  bank  loans  (27 %).  Equity 
financing  plays  a  smaller  role  and  is  relevant  for 
only  17 %  of  SMEs  (European  Commission 
2017f).  Financing  conditions  have  improved,  but 
challenges  remain  for  start-ups,  small  companies 
and those without mortgage collateral. The Danish 
Growth  Fund  provides  SMEs  with  public  support 
capital 
through  debt, 
instruments.  To 
capital 
investment,  the  government  has  launched  reforms 
to promote equity financing (see Section 3.2). 

and  venture 
encourage  private 

equity 

The  digital  economy  –  connectivity  and 
digitisation 

To  meet  its  targets  for  high-speed  broadband 
access,  the  government  has  committed  itself  to 
improving  network  quality  in  rural  areas.  It 
to  ensure  full  high-speed  coverage  of 
aims 
100 Mbps  download  speed  and  30  Mbps  upload 
speed  by  2020.  While  high  for  the  country  as  a 
whole  (95 %,  as  compared  to  the  EU  average  of 
80 % according to European Commission, 2018b), 
network  quality  is  lower  in  rural  areas.  This 
includes 
broadband 
networks, which cover only 65 % of households in 
these  areas.  Denmark  allocated  DKK  200 million 
(approx.  EUR 27 million)  of  public  funds  to  a 
broadband  fund.  The  fund  was  increased  with 
DKK  60  million  in  2017.  In  mobile  broadband, 
positive figures of 129 broadband subscriptions per 
100 people (90 at EU level) and full 4G coverage 
(100 %) were reported.  

next-generation 

access 

Danish companies are among the most digitally 
intensive  in  the  EU,  with  28  %  of  SMEs  selling 

36 

 
3.4. Investment 

Box 3.4.1: Investment challenges and reforms in Denmark 

Macroeconomic perspective  

At  20%  of  GDP,  aggregate  investment  in  Denmark  reaches  EU  average  levels.  To  support  the 
economy,  public  investment  was  raised  significantly  in  2012.  Since  then,  public  investment  has 
developed in line with nominal GDP. As a result, public investment as a share of GDP has been 
broadly stable at levels above the pre-crisis average. Investment as a share of GDP was broadly at 
EU  average  levels  until  2008,  but  it  took  a  severe  hit  in  the  crisis.    Since  then  investment  has 
recovered, closing the gap with the EU. While business investment at the aggregate level has also 
returned  to  more  normal  levels,  investment  of  smaller  companies  remains  subdued.  Moreover, 
household investment has picked up from low levels.  

Assessment of barriers to investment and ongoing reforms  

Overall,  barriers  to  private  investment  in  Denmark  are  moderate,  according  to  the  European 
Commission (2015). In 2017, Parliament adopted reforms to liberalise retail planning and increase 
competition in the taxi sector. Recent initiatives also help to further foster the cooperation between 
academia, research and business, and building regulations have been amended, making it easier to 
build.  Competition  nevertheless  remains  weak  in  several  domestically  oriented  services  and 
weighs on investment and hence productivity growth (see Section 3.4).  

Main barriers to investment and priority actions underway 
1.  Among  the  main  barriers  to  investment,  weak  competition  remains  key.  A  new  building 
regulation to simplify the building requirements has entered into force, which aims at increasing 
competition  in  the  construction  sector.  The  government  has  also  adopted  measures  to  liberalise 
retail  planning  and  the  taxi  sector.  However,  further  reforms  are  envisaged  to  raise  competition, 
particularly in domestic oriented services sectors. 

2. Equity financing plays a relatively minor role for Danish companies, and retail savers remain 
hesitant  investing  in  stocks.  Based  on  recommendations  from  a  consultative  panel,  the 
government  has  adopted  reforms  aimed  at  supporting  entrepreneurship  and  promoting  capital 
market development.    

3. Denmark faces investment needs in its transport infrastructure. The investment needs stem on 
the one hand from projected faster growth of freight and passenger transports than of the overall 
economy, putting pressure on the transport systems, particularly around greater Copenhagen. On 
the other hand, needs also stems from higher climate, security and performance requirements.  

37 

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 frameworkRetailLabour 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 
 
3.5.   SECTORAL POLICIES 

3.5.1.  RESEARCH AND INNOVATION 

investment 

Significant  R&D 
is  boosting 
scientific and innovation performance. Denmark 
has increased its R&D intensity since 2000 and is 
close to its national R&D intensity target of 3 % of 
GDP (2.9 % in 2016). At 1.0 % in 2016, its public 
R&D  intensity  was  the  second  highest  in  the  EU. 
Business expenditure on research and development 
(BERD) was the fourth highest in the EU in 2016, 
at  1.9 %  of  GDP,  but  it  declined  from  2.1 %  in 
2009, mostly due to a drop in the ICT sector. The 
Copenhagen  region  stood  out  as  the  fifth  most 
R&D intensive region in the EU in 2015.  

performer 

Denmark is an Innovation Leader according to the 
European Innovation Scoreboard 2017 and the best 
EU 
opportunity-driven 
in 
entrepreneurship.  However,  employment  in  fast-
growing  firms  in  innovative  sectors  is  still  below 
the  EU  average  and  even  declined  between  2012 
and 2014. 

Graph 3.5.1:  Employment in fast-growing firms in innovative 

sectors 

in  quest 

Scientific  excellence  and  collaborative  research 
are  strong  features  of  the  Danish  R&I  system. 
Denmark  ranked  third  in  the  EU  in  both  the  top 
1 %  and  10 %  of  cited  scientific  publications  in 
2014 (22).  Its  researchers  are  very  open 
to 
for  new 
cooperation  with  others 
knowledge as shown by its leading position in the 
European  Research  Area  as  regards  international 
scientific co-publications per million of population 
in  2016.  Also,  the  proportion  of  foreign  doctoral 
students  is  above  the  EU  average.  However,  at 
6.3 %,  R&I  expenditure  by  foreign-owned  firms 
does  not play  a  significant role  as  a proportion of 
total  BERD  (European  Commission,  2017e)  as 
compared  with  the  situation  in  other  Member 
States, 
is  relatively 
unattractive for foreign BERD.  

that  Denmark 

indicating 

co-publications 

scientific 
population.  However, 

Efforts  to  improve  links  between  science  and 
the economy would strengthen the R&I system. 
Denmark  was  the  EU  top  performer  in  2015  in 
public-private 
per 
public 
of 
million 
expenditure  on  R&I  company-financed  R&I  was 
low  in  EU  terms  (0.02 %  of  GDP  in  2015,  as 
against 
the  EU  average  of  0.05 %).  SMEs’ 
cooperation  with  universities  and  other  higher 
education  institutions  could  still  be  improved, 
especially  in  light  of  practise  in  other  Member 
States  such  as  Finland,  Austria  and  Belgium, 
according to the Eurostat’s Community Innovation 
Survey. 

The fact that there are only relatively few high-
growth, innovative firms may weaken economic 
and productivity growth as well as job creation. 

(22)  Citation window 2014-2016. 

Source: European Commission 

3.5.2.  ENVIRONMENT AND ENERGY POLICY 

the  energy  and 
The  decarbonisation  of 
significant 
sectors  will  require 
transport 
investments  and  economic  activity  beyond  the 
remit of these sectors themselves. Denmark has a 
long  term  domestic  objective  of  a  low-emission 
society  independent  of  fossil  fuels  by  2050.  The 
energy  transition  implies  a  structural  shift  in  the 
economic  activities,  by  which  energy-related 
investment  and  jobs  will  in  part  migrate  from  the 
sectors historically linked to energy towards other 
sectors  related  to  the  deployment  of  low  carbon 
and clean energy technologies.   

The  greenhouse  gas  intensity  in  the  Danish 
economy  is  among  the  lowest  in  the  EU.    In 
2015,  its  energy  mix  features  a  much  higher 
proportion of renewable energy than that of the EU 
(29.3 %  of  gross  inland  consumption,  as  against 
13 %).  It  uses  no  nuclear  energy,  and  has  lower 
proportions  of  natural  gas  (17.6 %  vs  22 %)  and 
solid fuels (10.6 % vs 16.2 %). Although 24.5 % of 

38 

024681012IEHUSKMTUKBGSEPLNLCZLV EU-28DEDKFRLULTPTESEESIATHRFIROITBECY% oftotal employmentEmployment fast-growing firms innovative sectors, 2012 and 201420142012 
 
                                                           
 
3.5. Sectoral policies 

3.5.2).  Road  transport  emissions  in  Denmark  are 
among  the  highest  in  the  EU.  On  the  other  hand, 
previous  increases  in  the  duty  on  emissions  of 
nitrogen  oxides  are  being  rolled  back.  The 
difference  between  tax  rates  on  petrol  and  diesel 
remains  very  high 
(European  Environment 
Agency, 2016). 

Graph 3.5.2:  Revenue from environmental taxes 

(1) Energy taxes include taxes on energy products used for 
both transport and stationary purposes. (2) Transport taxes 
include taxes on the ownership and use of motor vehicles. 
They also include taxes on other transport equipment such 
as planes and on related transport services. (3) Pollution 
taxes include taxes on measured or estimated emissions to 
air (except taxes on CO2 emissions) and water, on the 
management of waste and on noise. (4) Resource taxes 
include any taxes linked to the extraction of use or a natural 
resource. 
Source: European Commission (2017g) 

3.5.3.  COMPETITION IN PRODUCT AND 

SERVICES MARKETS 

Retail sector  

Planning  regulations  have  been  made  more 
flexible  to  allow  for  the  expansion  of  certain 
store  formats  and  the  planning  of  new  retail 
zones.  The  new  Planning  Act,  in  force  since  15 
June  2017,  removed  caps  on  floor  surface  for 
non-grocery  stores  and  raised  the  cap  for  grocery 
stores.  It  also  allowed  municipalities  to  designate 
additional  retail  zones  outside  central  areas.  The 
Danish Business Authority has developed detailed 
guidelines  to  help  local  authorities  implementing 
the  new  retail  possibilities,  including  planning  of 
such new zones, which is based on detailed ex-ante 
analysis of future investment to determine whether 

electricity generation came from coal in 2015, coal 
represented only 10.6 % of the energy mix. . 

for  2020, 
the  climate  policy 
As  regards 
Denmark expects to achieve its emissions target 
under  the  Effort  Sharing  Decision  by  a  small 
margin.  The  target  (for  emissions not covered by 
the  EU  emissions  trading  system)  is  to  reduce 
emissions  by  20  %  in  2020  as  compared  with 
2005. Denmark had reduced its emissions by 19 % 
in 2016 and is projected, with existing policies, to 
be on track to reach its target by 2020.  

in 

Denmark  has  achieved  its  targets  for  the 
proportion  of  renewables 
final  energy 
consumption  and  reduction  in  primary  energy 
consumption.  The  former  was  reached  already  in 
2015 (30.8 %), and the share increased to 32.2% in 
2016.  As  regards  the  indicative  national  2020 
target for final energy consumption, Denmark will 
need  to  make  further  efforts  to  reverse  the  trend 
which  led  to  a  6.2  %  increase  between  2014  and 
2016, thereby leading DK to exceed its 2020 target 
of 14.4 Mtoe. 

Current  gas  interconnection  points  might  not 
guarantee security of supply in the long term. In 
response to falling production from North Sea gas 
fields,  several  projects  have  been  launched  to 
secure  the  gas  supply,  including  interconnectors 
with Poland (Baltic Pipe) and Norway (Tie-in). For 
electricity,  current  congestion  management  and 
price-zone  definition  in  Germany  and  in  Central 
Europe  do  not  always  address  congestion 
effectively. This leads to increasing limitations on 
cross-border  flows  of  electricity.  Therefore,  the 
joint  declaration  with  Germany  in  2017  aims  at 
increasing  the  capacity  of  the  electricity  DK1-DE 
interconnector and is a step in the right direction. 

The  Danish  wind  industry  is  recognised  as  a 
world  leader.  Denmark’s  particular  strength  in 
clean energy RD&D is offshore, in particular wind 
(but  increasingly  also  wave)  energy.  In  2015, 
public  investment  in  the  Energy  Union  R&I 
priorities reached EUR 138 million (down by 7 % 
as compared to 2014). 

Taxes  on  pollution  and  to  combat  climate 
change  are  higher  in  Denmark  than  elsewhere 
in  the  EU.  Environmental  taxes  amounted  to 
4.0 % of GDP in 2015, modestly down from 2010, 
compares  with  an  EU  average  of  2.4 %  (Graph 

39 

0.000.501.001.502.002.503.003.504.004.50DKSIELLVHRITNLFIEECYMTBGHUPLPTUKATROFRBESECZLTDEESIESKLUEU-28% of GDP20102016 
 
3.5. Sectoral policies 

to the taxi services market. Moreover, the number 
of  taxi  licences  will  gradually  be  increased.  From 
2020,  any person or  private  entity that applies for 
and fulfils the criteria set up for obtaining a license 
as  a  transport  operator  with  passenger  cars  can 
obtain  a  license.  Amongst  the  criteria  is  a  capital 
requirement  of  DKK  40 000 (approximately  EUR 
5  000).  This  enables  the  license  holder  to  obtain 
public  service  contracts, 
limousine 
services  and  act  as  a  supplier  for  the  dispatch 
centrals of taxi companies. In addition, the country 
will  become  a  single  taxi  zone  (current  zones 
largely  coincide  with  municipality  borders)  and 
requirements as regards drivers’ training, skills and 
experience will be updated. Taxi services can only 
be  supplied  by  the  dispatch  centrals  of  taxi 
companies.  To  operate,  taxi  companies  need  a 
license  and  are  subject 
to  certain  capital 
requirements. 

to  offer 

Mortgage credit 

and 

regulatory 

the  mortgage  market, 

The  mortgage  market  is  concentrated  and 
to  high  entry  barriers.  Increasing 
subject 
country-specific 
EU-wide 
supervisory requirements generally constitute high 
barriers  for  potential  new  entrants  to  the  banking 
market.  The  Danish  Competition  and  Consumer 
Authority  (2017)  pointed  to  a  lack  of  competition 
in 
to  higher 
consumer prices. To compensate for the substantial 
fall  in  net  interest  income  since  2009,  mortgage 
banks  have  almost  doubled  their  fees  in  that 
period,  an  increase  that  the  report  considered 
excessive. Further, the Competition and Consumer 
Authority  makes  a  number  of  recommendations 
aimed  at,  among  other  things,  lowering  entry 
barriers,  increasing  transparency  and  making  it 
easier to switch between mortgage providers. 

leading 

Construction 

initiatives  have  helped 

Government 
foster 
competition in the construction sector. The new 
Building  Regulation  that  entered  into  force  on  1 
the  building  permit 
January  2018  simplifies 
procedure  and 
transparency  of 
the 
increases 
specific building requirements (see Box 3.4.1). To 
support  the  new  building  permit  procedure,  a 
certification  scheme  for  technical  documentation 
has  entered  into  force  on  1  January  2018,  which 
enables certified consultants to verify or document 
compliance  with  certain  requirement  on  technical 

in  2020.  The  reform 

they  are  likely  to  improve  competition  and  lower 
prices  in  the  area.  The  government  plans  to 
evaluate  the  new  rules  annually  and  carry  out  a 
is 
broader  evaluation 
estimated to bring DKK 0.75 billion gains in GDP 
in  the  long  term  and  increase  productivity  in  the 
sector by  nearly  1 %  (Ministry of  Finance, 2016). 
the 
Despite 
Productivity  Board  finds  that  the  amendments  to 
the  Planning  Act  do  not  go  far  enough  in 
liberalising  the  establishment  of  grocery  shops 
which could further boost productivity. 

developments, 

positive 

these 

Despite  dynamic  developments  in  the  discount 
segment of the market consumer prices remain 
high.  The  discount  segment  is  among  the  most 
developed in the EU (around 40 % of the market) 
and  features  several  foreign  competitors.  It  has 
seen  dynamic  developments  recently,  with  less 
efficient  players 
the  market.  Such 
developments  in  this  particularly  price-oriented 
segment could have a positive effect on the overall 
level  of  prices.  However,  purchasing  power 
adjusted food prices are still the highest in the EU 
(Eurostat, 2017). It remains to be seen whether the 
new  Planning  Act 
the  expected 
productivity  gains  and  a  decrease  in  consumer 
prices.  

leaving 

leads 

to 

Wholesale in pharmaceuticals 

to 

Denmark  is  reviewing  the  wholesale  trade  in 
the  Danish 
pharmaceuticals.  According 
Competition and Consumer Authority (2016) there 
is  limited  competition  in  the  distribution  of 
medicines to pharmacies. The market is dominated 
by  two  wholesalers,  which  account  for  95-100 % 
of the market. At the same time, price competition 
is very limited, since purchase prices are identical 
for all wholesalers. In addition, the IT system used 
by  pharmacies  and  wholesalers  makes  it  difficult 
and costly for new companies to enter the market. 
The  government 
is  currently  working  on  a 
proposal  to  increase  competition,  based  on  the 
competition authority’s recommendations. 

Taxi services 

A  new  law  liberalises  the  taxi  market  by  2020. 
The  basic  idea  is  to  foster  competition  and 
development  of  service  by  gradually  opening 
access to the profession as an operator of transport 
services with passenger cars and by opening access 

40 

 
conditions  of  buildings  with  a  high  complexity. 
The  certification  scheme  recognizes  the  relevant 
provisions of Directive 2005/36/EC on recognition 
of  professional  qualifications  so  as  to  ensure 
provision  of  services  within  the  Single  Market. 
Finally, a number of national standards have been 
replaced  by  European  standards  in  the  Building 
foreign 
Regulation, 
construction  companies  seeking  to  service  the 
Danish market. 

facilitating 

access 

for 

Network sectors 

Inefficiencies in electricity distribution have led 
to high electricity consumer prices. Despite low 
energy  wholesale  prices,  Danish  households  face 
some of the highest energy prices in the EU due to 
high  distribution  costs,  taxes  and  levies  (Graph 
3.5.3).  In  order  to  strengthen  competition  and 
efficiency in the distribution of electricity  and the 
the  government 
activities  of  other  utilities, 
presented in 2016 its strategy for the utility sectors, 
covering  electricity,  gas,  central  heating,  water, 
sewage  but  also  waste  treatment  (Regeringen, 
2016). The government estimates that the strategy 
will lower consumer prices on utilities by bringing 
efficiency gains of an estimated DKK 5.9 billion in 
2025 (0.1 % of GDP). So far, political agreements 
have  been  reached  concerning  electricity,  gas  and 
central  heating  and  also  a  strengthening  of  the 
energy  regulatory  authority.  However,  initiatives 
related  to  improve  the  efficiency  of  sewage  and 
waste incineration are still pending. 

3.5. Sectoral policies 

Graph 3.5.3:  Electricity consumer prices, 2016 

(1) Prices refer to consumption of between 2500 kWh and 
5000 kWh annually 
Source: Eurostat 

3.5.4.  COLLABORATIVE ECONOMY 

There  is  significant  consumer  interest  in  the 
collaborative  economy  in  Denmark.  According 
to  Statistics  Denmark  (2017b),  every  fifth  Dane 
participates  in  the  collaborative  economy.  In 
October 2017, the government published a strategy 
for  the  collaborative  economy,  which  set  out  22 
initiatives making it easier to offer and use services 
based  on  new  technologies  while  ensuring  that 
applicable  taxes  are  being  paid  (Ministry  of 
Industry,  Business  and  Financial  Affairs,  2017c). 
The  strategy  includes  a  new  system  for  platforms 
to  report  information  on  income  generated  by 
service providers using the platform, who could in 
income-tax  deductions. 
return  benefit 
Thresholds  are  also  being  put  in  place  to  allow 
people  offering  certain  services  on  an  occasional 
basis  to  benefit  from  lighter  regulation.  The 
issuing  guidance  and 
government 
establishing  a  point  of  contact  to  raise  citizens’ 
awareness  of  their  rights  and  obligations  in  the 
collaborative economy. 

is  also 

from 

41 

0.000.050.100.150.200.250.300.35BGHULTROEEMTHRPOCZSKFINLCYLVSILUFRELUKSEATEEPTIEITBEDEDKEUR per kWhNetwork costsEnergy and supplyTaxes and levies 
 
 
 
ANNEX A  

OVERVIEW TABLE 

Commitments  

Summary assessment (1)  

2017 country-specific recommendations (CSRs)  

CSR 1: Foster competition in the domestically oriented 
services sector  

Denmark has made limited progress in addressing 
CSR 1:  

The  government  has  adopted  reforms  concerning 
the  retail  and  transport  sectors,  hence  some 
progress  in  this  area.  Following  the  mapping  of 
standards in 2015, the modernisation of the law on 
electrical  installations  in  2015,  and  the  2018 
update  of  the  building  regulation  to  simplify 
procedures  there  is  some  progress  in  increasing 
competition  in  the  construction  sector.  However, 
weak  competition  continues  to  prevail  in  several 
other services sectors, such as finance, distribution 
of  utilities  and  pharmacies,  healthcare  and  legal 
profession.  In  these  sectors  none  or  limited 
progress was made. 

Europe 2020 (national targets and progress)  

Employment rate target set in the NRP: 80 %.  

77.4 % (2016) 

The  employment  rate  has  increased  moderately, 
from  75.6  %  in  2013  to  77.4  %  in  2016.  It 
remains, however, below pre-crisis levels (79.7 % 
in  2008).  Denmark  has  adopted  a  series  of  active 
labour  market  reforms  in  recent  years,  aiming  at 
increasing  the  incentives  to  work  ('make  work 
pay').  These  measures  are  also  expected 
to 
contribute  closing  the  2.6  percentage  point  gap 
from  Denmark’s 
2020 
employment target (80 %). 

national  Europe 

R&D target set in the NRP: 3.0 % of GDP  

2.9 % (2016) 

Denmark's  R&D  intensity  has  been  around  the 
EU2020 target of 3 % of GDP since 2009 reaching 
2.9 %  of  GDP  in  2016.  The  country  has  the 
second  highest  public  R&D  intensity  (despite  a 
small  contraction  in  2016)  and  the  fourth  highest 
BERD intensity in Europe.  

Greenhouse 

gas 

emissions, 

national 

target:  

2020-target: -20 % 

Emissions  in  the  sectors  not  covered  by  the 

42 

 
 
 
 
 
A. Overview table 

-20 % in 2020 compared to 2005 (in non-ETS sectors)   Emissions  Trading  System  (ETS)  are  expected  to 
be 22 % lower in 2020 than in 2005, according to 
the  latest  national  projections  and  taking  into 
account  existing  measures.  Denmark  is  therefore 
expected  to  achieve  its  2020-target  with  a  small 
margin.  

2016 interim target: -15 % 

Emissions in 2016 were 19 % lower than in 1990, 
according to approximated data. The interim target 
was achieved by a margin of 4 percentage points.  

2020 renewable energy target: 30 %  

32.2 % (2016) 

With a 32.2 % share of renewable energy in final 
energy consumption in 2016, 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, 2020 energy consumption targets:  

16.51 Mtoe (2015)  

17.38 Mtoe (primary energy consumption);  

14.39 Mtoe (final energy consumption).  

its 

primary 

increased 

Denmark 
energy 
consumption by 3.4 % from 16.60 Mtoe in 2015 to 
17.17  Mtoe  in  2016.  Final  energy  consumption 
increased  by  3.1  %  from  14.01  Mtoe  in  2015  to 
14.45 Mtoe in 2016. Even if Denmark has already 
achieved  a  level  of  primary  energy  consumption 
which is below the indicative national 2020 targets 
(17.38  Mtoe),  it  would  need  to  make  an  effort  to 
decrease the level of final energy consumption to 
reach its 2020 target (14.39 Mtoe).   

Early school leaving (ESL) target: <10 % 

7.2 % (2016) 

(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  in 
recent  years,  from12.5  %  in  2008  to  7.2  %  in 
2016. 

Tertiary education target: >40 % %.  

47.7 % (2016) 

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  47.7  %  in 
2016.  

Target  for  reducing  the  number  of  people  at  risk  of 
poverty  or  social  exclusion,  expressed  as  an  absolute 

Between  2008  and  2016  the  number  of  people 
living in low-work intensity households increased 

43 

 
A. Overview table 

number  of  people:  reduce  the  number  of  people  in 
households with low work intensity by 22 000 towards 
2020.  

with  88  000  (+25  %),  i.e.  the  gap  to  the  national 
Europe  2020  target  in  the  area  of  poverty  and 
social  exclusion  (reducing  the  number  of  persons 
living  in  low  work  intensity  households  with  22 
000 by 2020) is far from being closed. 

A better inclusion of people on the margins of the 
labour  market  is  crucial.  To  address  this,  the 
government  has  introduced  a  strategy  to  progress 
towards its ten goals on social mobility, designed 
to  give  direction  and  greater  emphasis  to  social 
policy. Denmark is making progress on some but 
lagging  behind  on  others,  such  as  increasing  the 
proportion  of  young  marginalised  people  starting 
an  upper  secondary  education  and  reducing  the 
number of homeless people (this rose from 5 000 
in 2009 to 6 600 in 2017).  

44 

(1) The following categories are used to assess progress in implementing the 2017 country-specific recommendations (CSRs):  No progress: The Member State has not credibly announced nor adopted any measures to address the CSR. This category covers a number of typical situations, to be interpreted on a case-by-case basis taking into account country-specific conditions. They include the following:  no legal, administrative, or budgetary measures have been announced  o in the national reform programme, o in any other official communication to the national Parliament/relevant parliamentary committees or the European Commission,  o publicly (e.g. in a press statement or on the government's website);   no non-legislative acts have been presented by the governing or legislative 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 to be taken (unless the CSR explicitly asks for orientations or exploratory actions). However, it has not proposed any clearly-specified measure(s) to address the CSR.  Limited progress: The Member State has:  announced certain measures but these address the CSR only to a limited extent; and/or  presented legislative acts in the governing or legislative body but these have not been adopted yet and substantial further, non-legislative work is needed before the CSR is implemented;   presented non-legislative acts, but has not followed these up with the implementation needed to address the CSR.  Some progress: The Member State has adopted measures   that partly address the CSR; and/or   that address the CSR, but a fair amount of work is still needed to address the CSR fully as only a few of the measures have been implemented. For instance, a measure or measures have been adopted by the national Parliament or by ministerial decision, but no implementing decisions are in place.  Substantial progress: The Member State has adopted measures that go a long way towards addressing the CSR and most of them have been implemented.  Full implementation: The Member State has implemented all measures needed to address the CSR appropriately.  
  
ANNEX B  

MACROECONOMIC IMBALANCES PROCEDURE SCOREBOARD 

Table B.1: 

The MIP scoreboard for Denmark (AMR 2018) 

Flags:b:Break in series.          
(1) This table provides data as published under the Alert Mechanism Report 2018, which reports data as of 24 Oct 2017. 
Please note that figures reported in this table may therefore differ from more recent data elsewhere in this document.  
(2) Unemployment rate: i = Eurostat back-calculation to include 2011 Population Census results.           
Source: European Commission 2017, Statistical Annex to the Alert Mechanism Report 2018, SWD(2017) 661.           

45 

Thresholds201120122013201420152016Current account balance, % of GDP 3 year average-4%/6%5.5 6.5 6.9 7.7 8.5 8.4 Net international investment position% of GDP-35%27.8 36.1 37.2 43.4 34.3 54.8 Real effective exchange rate - 42 trading partners, HICP deflator3 year % change±5% (EA) ±11% (Non-EA)-2.6 -7.8 -2.5 -1.2 -1.6 -1.5 Export market share - % of world exports5 year % change-6%-13.6 -17.4 -17.5 -15.5 -8.2 -4.2 Nominal unit labour cost index (2010=100)3 year % change9% (EA) 12% (Non-EA)3.6 -0.1 1.5 2.4 2.6 3.4 House price index (2015=100), deflated 1 year % change6%-4.0 -4.9 3.1 2.9 6.3 4.2 Private sector credit flow, consolidated% of GDP14%4.4 7.9 -3.1 0.0 -6.2 -10.4 Private sector debt, consolidated% of GDP133%221.0 224.0 216.1 214.7 207.6 210.7 General government gross debt% of GDP60%46.1 44.9 44.0 44.0 39.5 37.7 Unemployment rate3 year average10%7.0 7.5 7.4 7.0 6.6 6.3 Total financial sector liabilities, non-consolidated1 year % change16.5%1.6 2.5 1.8 7.3 -1.0 3.3 Activity rate - % of total population aged 15-643 year change in pp-0.2 pp-1.4 -1.6 -1.3 -1.2 -0.1 1.9bLong-term unemployment rate - % of active population aged 15-743 year change in pp0.5 pp1.3 1.5 0.3 -0.1 -0.4 -0.4bYouth unemployment rate - % of active population aged 15-243 year change in pp2 pp6.2 2.3 -0.9 -1.6 -3.3 -1.0 External imbalances and competitivenessInternal imbalancesEmployment indicators 
 
 
 
 
 
ANNEX C  

STANDARD TABLES 

Table C.1: 

Financial market indicators 

1) Latest data Q3 2017. Includes not only banks but all monetary financial institutions excluding central banks. 
2) Latest data Q2 2017. 
3) As per ECB definition of gross non-performing debt instruments 
4) Quarterly values are not annualised 
5) Latest data April 2017. 
* Measured in basis points. 
Source: European Commission (long-term interest rates); World Bank (gross external debt); Eurostat (private debt); ECB (all 
other indicators). 

46 

201220132014201520162017Total assets of the banking sector (% of GDP)1)454.7404.6407.3377.1383.2366.5Share of assets of the five largest banks (% of total assets)65.668.468.167.868.3-Foreign ownership of banking system (% of total assets)2)12.512.912.212.512.36.9Financial soundness indicators:2)              - non-performing loans (% of total loans)3)3.93.95.14.03.42.9              - capital adequacy ratio (%)18.719.218.219.820.721.2              - return on equity (%)4)2.04.44.76.89.76.1Bank loans to the private sector (year-on-year % change)1)-0.40.60.21.01.21.1Lending for house purchase (year-on-year % change)1)1.2-0.80.41.11.51.6Loan to deposit ratio1)295.4292.4280.5277.3266.0257.4Central Bank liquidity as % of liabilities5)1.40.91.00.70.60.6Private debt (% of GDP)224.0216.1214.0207.4208.6-Gross external debt (% of GDP)2) - public19.917.217.815.113.012.1    - private41.436.639.240.839.937.8Long-term interest rate spread versus Bund (basis points)*-9.217.616.319.523.116.4Credit default swap spreads for sovereign securities (5-year)*80.017.616.012.715.510.9 
 
 
 
 
C. Standard tables 

Table C.2: 

Headline Social Scoreboard indicators 

The Social Scoreboard includes 14 headline indicators, of which 12 are currently used to compare Member States 
performance. The indicators "participants in active labour market policies per 100 persons wanting to work" and 
"compensation of employees per hour worked (in EUR)" are not used due to technical concerns by Member States. Possible 
alternatives will be discussed in the relevant Committees. 
(1) People at risk of poverty or social exclusion (AROPE): individuals who are at risk of poverty (AROP) and/or suffering from 
severe material deprivation (SMD) and/or living in households with zero or very low work intensity (LWI).       
(2) 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.       
(3) Gross disposable household income is defined in unadjusted terms, according to the draft Joint Employment Report 2018.       
(4) Reduction in percentage of the risk of poverty rate, due to social transfers (calculated comparing at-risk-of poverty rates 
before social transfers with those after transfers; pensions are not considered as social transfers in the calculation).       
(5) Average of first three quarters of 2017for the employment rate and gender employment gap. 
Source: Eurostat  

47 

201220132014201520162017 5Equal opportunities and access to the labour marketEarly leavers from education and training (% of population aged 18-24)9.18.07.87.87.2:Gender employment gap (pps)6.46.37.37.66.76.2Income inequality, measured as quintile share ratio (S80/S20)3.94.04.14.14.14.1At-risk-of-poverty or social exclusion rate1 (AROPE)17.518.317.917.716.717.2Young people neither in employment nor in education and training (% of population aged 15-24)6.66.05.86.25.8:Dynamic labour markets and fair working conditions†Employment rate (20-64 years)75.475.675.976.577.476.8Unemployment rate2 (15-74 years)7.57.06.66.26.25.8Gross disposable income of households in real terms per capita3 (Index 2008=100) ::105.0107.3109.7:Public support / Social protection and inclusionImpact of social transfers (excluding pensions) on poverty reduction456.257.255.052.752.251.0Children aged less than 3 years in formal childcare67.065.069.677.370.0:Self-reported unmet need for medical care1.31.31.41.31.3:Individuals who have basic or above basic overall digital skills (% of population aged 16-74):::75.078.071.0 
 
 
 
 
 
C. Standard tables 

Table C.3: 

Labour market and education indicators 

* * Non-scoreboard indicator       
(1) Long-term unemployed are people who have been unemployed for at least 12 months.       
(2) Difference between the average gross hourly earnings of male paid employees and of female paid employees as a 
percentage of average gross hourly earnings of male paid employees. It is defined as "unadjusted", as it does not correct for 
the distribution of individual characteristics (and thus gives an overall picture of gender inequalities in terms of pay). All 
employees working in firms with ten or more employees, without restrictions for age and hours worked, are included.       
(3) PISA (OECD) results for low achievement in mathematics for 15 year-olds.       
(4) Impact of socio-economic and cultural status on PISA (OECD) scores Values for 2012 and 2015 refer respectively to 
mathematics and science..  
(5) Average of first three quarters of 2017, unless for the youth unemployment rate (annual figure). 
Source: Eurostat, OECD 

48 

Labour market indicators201220132014201520162017 5Activity rate (15-64)71.672.973.574.075.0:Employment in current job by durationFrom 0 to 11 months9.79.39.710.010.1:From 12 to 23 months7.77.37.07.58.5:From 24 to 59 months17.717.016.115.115.4:60 months or over64.866.267.167.365.9:Employment growth* (% change from previous year)0.40.30.61.41.31.6Employment rate of women(% of female population aged 20-64)62.563.864.766.468.670.2Employment rate of men (% of male population aged 20-64)80.281.082.283.084.686.1Employment rate of older workers* (% of population aged 55-64)49.351.654.055.558.561.7Part-time employment* (% of total employment, aged 15-64)5.05.85.55.35.76.1Fixed-term employment* (% of employees with a fixed term contract, aged 15-64)8.39.19.710.09.79.6Transition rate from temporary to permanent employment(3-year average)36.034.733.535.1::Long-term unemployment rate1 (% of labour force)3.03.02.72.41.71.1Youth unemployment rate (% active population aged 15-24)19.518.915.912.610.57.9Gender gap in part-time employment6.47.57.07.17.78.5Gender pay gap2 (in undadjusted form)22.522.322.522.5::Education and training indicators201220132014201520162017Adult participation in learning(% of people aged 25-64 participating in education and  training)11.110.09.68.58.8:Underachievement in education321.0::21.7::Tertiary educational attainment (% of population aged 30-34 having successfully completed tertiary education)25.626.728.230.132.8:Variation in performance explained by students' socio-economic status416.2::18.8:: 
 
 
 
C. Standard tables 

Table C.4: 

Social inclusion and health indicators 

*  Non-scoreboard indicator 
(1) At-risk-of-poverty rate (AROP): proportion of people with an equivalised disposable income below 60 % of the national 
equivalised median income.  
(2) 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. 
(3) Percentage of total population living in overcrowded dwellings and exhibiting housing deprivation. 
(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) Ratio of the median individual gross pensions of people aged 65-74 relative to the median individual gross earnings of 
people aged 50-59. 
(6) Fixed broadband take up (33%), mobile broadband take up (22%), speed (33%) and affordability (11%), from the Digital 
Scoreboard. 
Source: Eurostat, OECD 

49 

201220132014201520162017Expenditure on social protection benefits* (% of GDP)Sickness/healthcare6.56.46.36.3::Disability4.14.14.14.1::Old age and survivors12.713.314.013.6::Family/children3.73.63.53.5::Unemployment1.91.81.61.5::Housing0.70.70.70.7::Social exclusion n.e.c.1.21.31.31.5::Total30.931.331.631.1::of which: means-tested benefits11.011.211.311.3::General government expenditure by function (% of GDP, COFOG)Social protection24.624.524.023.623.4:Health8.78.58.68.68.6:Education7.06.97.17.06.9:Out-of-pocket expenditure on healthcare (% of total health expenditure)14.113.814.013.7::Children at risk of poverty or social exclusion (% of people aged 0-17)*14.915.414.515.713.814.5At-risk-of-poverty  rate1 (% of total population)12.011.912.112.211.912.4In-work at-risk-of-poverty rate (% of persons employed)5.25.54.95.55.35.3Severe material deprivation rate2  (% of total population)2.73.63.23.72.63.1Severe housing deprivation rate3, by tenure statusOwner, with mortgage or loan1.20.91.11.50.50.9Tenant, rent at market price5.04.84.75.13.66.0Proportion of people living in low work intensity households4 (% of people aged 0-59)10.211.912.211.610.610.0Poverty thresholds, expressed in national currency at constant prices*108815107205108491109962110964113538Healthy life years (at the age of 65)Females12.912.712.811.9::Males10.611.611.011.0::Aggregate replacement ratio for pensions5 (at the age of 65)0.40.40.50.40.50.5Connectivity dimension of the Digital Economy and Society Inedex (DESI)6::66.471.172.476.4GINI coefficient before taxes and transfers*50.649.951.450.751.2:GINI coefficient after taxes and transfers*28.126.827.727.427.7: 
 
 
 
 
C. Standard tables 

Table C.5: 

Product market performance and policy indicators 

(1) The methodologies, including the assumptions, for this indicator are shown in detail here: 
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 don't know.       
(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 here: http://www.oecd.org/competition/reform/indicatorsofproductmarketregulationhomepage.htm       
(6) Aggregate OECD indicators of regulation in energy, transport and communications (ETCR).       
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)."   

50 

Performance Indicators2010201120122013201420152016Labour productivity (real, per person employed, year-on-year % change)Labour productivity in Industry10.630.423.530.82-0.56-2.241.34Labour productivity in Construction-5.351.104.163.76-0.26-1.00-0.84Labour productivity in Market Services3.86-0.260.842.501.020.98-0.12Unit labour costs (ULC) (whole economy, year-on-year % change)ULC in Industry-7.150.08-0.891.142.924.420.87ULC in Construction6.24-0.64-1.48-3.031.643.103.95ULC in Market Services-1.310.611.73-1.751.290.701.74Business Environment2010201120122013201420152016Time needed to enforce contracts1 (days)410.0410.0410.0410.0380.0380.0380.0Time needed to start a business1 (days)5.55.55.55.55.53.03.0Outcome of applications by SMEs for bank loans2na0.78na0.700.440.980.79Research and innovation2010201120122013201420152016R&D intensity2.922.942.982.972.912.962.87General government expenditure on education as % of GDP7.106.807.006.907.107.006.90Persons with tertiary education and/or employed in science and technology as % of total employment46464748484849Population having completed tertiary education328282929303131Young people with upper secondary level education469707272737475Trade balance of high technology products as % of GDP-0.18-0.04-0.30-0.13-0.040.17naProduct and service markets and competition200320082013OECD product market regulation (PMR)5, overall1.481.351.22OECD PMR5, retail3.001.831.69OECD PMR5, professional services0.870.780.82OECD PMR5, network industries62.051.701.61 
 
 
 
C. Standard tables 

Table C.6:  Green growth 

All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2010 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 % of total value added for the economy 
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2010 EUR)  
Real unit energy costs for manufacturing industry excluding refining : real costs as % 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 GHG 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 2010 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 covering natural gas, total petrol products, nuclear heat, renewable 
energies and solid fuels 
* European Commission and European Environment Agency 
Source: European Commission and European Environment Agency (Share of GHG emissions covered by ETS); European 
Commission (Environmental taxes over labour taxes and GDP); Eurostat (all other indicators) 

51 

Green growth performance201120122013201420152016MacroeconomicEnergy intensity kgoe / €0.080.070.070.070.070.07Carbon intensity kg / €0.230.210.220.200.19-Resource intensity (reciprocal of resource productivity)kg / €0.500.490.450.450.450.46Waste intensity kg / €-0.07-0.08--Energy balance of trade % GDP0.70.80.30.00.00.0Weighting of energy in HICP%11.4611.4110.3110.5611.3210.15Difference between energy price change and inflation %4.5-0.70.80.7-5.9-2.2Real unit of energy cost% of value added10.410.710.310.1--Ratio of environmental taxes to labour taxesratio0.180.170.170.160.17-Environmental taxes% GDP4.04.04.14.04.04.0Sectoral Industry energy intensity kgoe / € 0.060.060.050.050.050.05Real unit energy cost for manufacturing industry excl. refining% of value added7.16.86.56.0--Share of energy-intensive industries in the economy% GDP10.3710.9310.3410.219.649.87Electricity prices for medium-sized industrial users€ / kWh0.100.100.100.100.090.09Gas prices for medium-sized industrial users€ / kWh0.040.040.040.040.040.03Public R&D for energy % GDP0.060.050.050.040.030.02Public R&D for environmental protection% GDP0.020.020.020.020.020.02Municipal waste recycling rate%41.542.143.245.146.347.7Share of GHG emissions covered by ETS*%36.934.139.136.032.734.7Transport energy intensitykgoe / €0.390.370.330.360.340.34Transport carbon intensitykg / €0.970.920.820.880.85-Security of energy supplyEnergy import dependency%-5.6-2.212.312.413.413.9Aggregated supplier concentration indexHHI9.25.35.77.44.8-Diversification of energy mixHHI0.260.260.260.270.270.27 
 
 
 
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