danish economy. growth was sound in the 2nd quarter, but according to preliminary data gdp dived in the 3rd quarter, to a level 0. 3 per cent lower than in the same period of 2010. this reflected not only weak export growth, but also a decline in government spending as the public sector sought to balance its finances. the growth pattern has generally been very uneven in recent years, so data for a single quarter should be interpreted with caution. nevertheless, the overall picture is that the danish economy, like the world economy, is slowing down. this situation is likely to continue well into 2012, and we do not expect growth in denmark to pick up in earnest before 2013. our forecast does not operate with a speedy resolution of the debt crisis. on the other hand, we do not foresee a total collapse either. in technical terms, we assume that europe will muddle through somehow. we should be careful not to paint too gloomy a picture of the danish economy. although we expect a small rise in unemployment in the near future, the danish labour market is doing relatively well. employment has declined a little since the beginning of 2010, and unemployment is only slightly above its structural level. private consumption is weak, but this reflects consolidation rather than lack of funds in the households. bis central bankers ’ speeches it is satisfactory that the new government is planning to reduce the government deficit to less than 3 per cent of gdp in 2013 and to improve the structural balance by 1. 5 per cent of gdp in 2011 – 13, as the eu recommends. add to this the support for important labour market reforms – the partial phasing - out of the early retirement scheme and reduction of the entitlement period for unemployment benefits. this will contribute to increasing structural employment considerably, thereby countering the demographically driven reduction of the labour force. it is evident that the 2012 finance bill does not provide for any improvement of the structural government budget balance next year. this makes it even more important to tighten up in 2013 in order to maintain the fiscal stance. anyone who is interested in current affairs can see that the euro area is in an economic and political crisis. for almost two years the arrow has been pointing in the wrong direction. more and more member states are struggling with mounting debts and high interest rates. this reflects the market participants ’ lack of confidence in these member states ’ ability to set their own houses in order. several member states have applied for and received external financial assistance – on conditions that stretch social structures

in these countries. based on bis data for 23 of the largest emes, since the end of 2007 credit to their private nonfinancial sectors has risen from roughly 80 to 135 percent of gdp. in several countries, the increase in private credit penetration exceeds 40 percent of gdp – roughly the same order of magnitude that we witnessed in other periods that preceded financial crises. although the magnitude of the eme credit boom has been apparent for some time, with eme growth now on a more subdued trajectory and the global financial environment less forgiving, market participants have begun to sharpen their focus on the risk of larger than expected credit losses as the credit cycle reverses. third, china has entered a period of economic transition, from a growth model based on investment, manufacturing and rapid state - directed credit growth to one emphasizing bis central bankers ’ speeches consumption, services and more sustainable market - directed credit intermediation. this transition also involves a downshift in china ’ s trend growth rate, which is inevitable given the level of economic development in china and the shrinking margin of underutilized labor market resources. economic transitions are always difficult to manage, and invariably present policymakers with unexpected challenges. it is not surprising, then, that market participants are focused on the risk that the downshift in chinese growth could prove to be more pronounced than anticipated. i want to be clear. the rebalancing process now underway in china is both necessary and appropriate, and will unfold over a period of years. how to pragmatically strike the best balance between progress on long - term reform and support for short - term growth is, of course, a matter for policymakers in china. you can be sure that you will have the backing of the official international community as you oversee this important transformation. finally, the slowdown in chinese and broader eme growth has been a key factor behind the sharp drop in global commodity prices since mid - 2014. the income streams accruing to commodity export countries have been adversely impacted, requiring sometimes painful downward adjustments in investment and economic activity in these countries. here, too, it may take time for markets to find a new equilibrium, as investment projects that were based on the price structure prevailing a few years ago are still coming online. in most cases, emes appear to have the tools and the resources to help manage their way through the current period of difficulties. there are fewer of the pegged exchange rate regimes that often came violently undone during