but only briefly the underlying growth potential, i. e. the speed at which output can rise, should not be confused with short - term cyclical movements driven by fluctuations in demand. over the last 20 years, average growth in denmark has been approximately 1. 5 per cent, cf. chart 1. this period comprises both overheating and a deep recession, so it is difficult to say anything about the structural growth rate. indications are that it has been lower than in the preceding decades. this does not mean that there cannot have been one year or several consecutive years in which annual growth exceeded its structural level, e. g. in an upswing. over longer periods, actual and structural growth are linked, however. this is because excessive growth in the short term, i. e. the build - up of imbalances in the economy, involves the risk of subsequent prolonged downturns with low or negative growth. in three of the last four decades, the danish economy has seen overheating followed by lengthy downturns lasting up to seven years. historical gdp growth rates in denmark chart 1 per cent gdp growth per capita gdp growth 1816 - 1836 - 1856 - 1876 - 1896 - 1916 - 1936 - 1956 - 1976 - 1996 - 20161826 1846 1866 1886 1906 1926 1946 1966 1986 2006 2050 source : ministry of finance, may 2017, and kim abildgren, a chart & data book on the monetary and financial history of denmark, ssrn working papers, no. 2977516, may 2017. the risk of imbalances often arises if domestic capacity is overestimated and excessive demand unleashed, e. g. via expansionary fiscal policy or easing of financial regulation. it is not sound economic policy to do so in an upswing when actual growth exceeds structural growth. the situation today ( autumn 2017 ) traditionally, the most important areas in relation to economic imbalances are the housing market, the labour market and growth in lending by financial institutions. the housing market has now been picking up for some years, but except for the market for owner - occupied flats it has not overheated – yet. the labour market has also been recovering markedly and there are increasing pressures and signs of labour shortage. but at present the labour market overall cannot be said to be overheated either – yet. so far, lending growth has been limited in the current upswing. there are indications that demand has been driven mainly by earnings and savings. finally, the large

balance of payments surplus and improved financial regulation make it possible to test the capacity limit a little more than previously. this time around, economic growth has been more balanced than in many previous periods. that is how it should continue to be. there is no need to jam on the fiscal or financial brakes in order to dampen demand yet. but nor is there any need for more accommodative economic policy. can overheating be countered by structural reforms? overheating occurs when society's demand for consumption and investment and demand from abroad substantially exceed the capacity of the economy. so it is relevant to ask whether overheating can be avoided – by curbing a rise in demand, and by introducing extraordinary expansions of the economic capacity – including whether the latter might even replace the former. basically, the answer to the last questions is no, or rather : this is very unlikely. it requires the implementation of supply reforms where the capacity increase materialises as rapidly, as strongly and with as much certainty as measures to curb demand do. there is one historical example to show that this is to some extent possible. the second half of the 1990s saw a protracted upswing in which the threat of economic overheating was countered several years in a row by introducing fast - acting measures to increase the supply of labour and lower structural unemployment. but the situation has changed since then and the instruments applied cannot be re - used. at that time, structural unemployment was 8 - 10 per cent. today it is 3 - 4 per cent and mainly comprises short unemployment spells between jobs. at that time, schemes such as leave of absence and transitional allowance, which had been introduced a few years earlier, could be abolished at short notice. they cannot be abolished once more. and even in the 1990s, capacity expansion was not a standalone solution. in 1998 a tax reform was introduced that not only brought long - term structural improvements, but also dampened demand in the short term ( the " whitsun package " ). this was one of the reasons why the subsequent cyclical downturn was mild and brief. in theory, a similar measure is available today, i. e. immediately to increase the early retirement and retirement ages. but they are already being increased gradually, and there seems to be broad political consensus that retirement ages should be increased at longer notice. that is a political priority. suggestions for other potential measures are more speculative, but they have one thing in common : it is far more uncertain