christian kettel thomsen : danish economy, financial risks and cash speech by mr christian kettel thomsen, governor of the national bank of denmark, at the annual meeting of finance denmark, copenhagen, 4 december 2023. * * * check against delivery as new governor in danmarks nationalbank, there are many things i will be doing for the first time. one of them is to give this annual speech. i've really been looking for - ward to this. another new task was when i recently signed a 50 - krone banknote. in terms of denomination, i may have had higher ambitions for my first signature. nevertheless, it was a reminder for me of the important role that cash still has, and will continue to have, in our society. i will return to this later on in my speech today. but first a few reflections on the danish economy and the financial sector. the developments in the past four years really show how quickly the eco - nomic situation can change. but if we look at economic activity in denmark right now, danmarks na - tionalbank's assessment is that we're heading for a soft landing. especially considering that the modest economic growth we're currently experiencing stems from large danish companies having increased their production abroad, i. e. outside the borders of denmark. disregarding danish companies'production abroad, danish gdp has ac - tually been stagnant since early 2022. and inflation also seems to be heading for a soft landing. it has fallen very significantly – initially because energy prices have dropped from the very high levels seen last year. but even though inflation has decreased a lot, we're still not there yet. we thus expect inflation to rise again early next year and to end at three per cent for the year as a whole. 1 / 6 bis - central bankers'speeches what we're seeing now is that where inflationary pressures used to come from the outside – including in the form of high energy and food prices – the pressures have now started to shift to being driven by domestic con - ditions, especially pay increases. here, we expect that the effects of the higher pay increases from the col - lective agreements concluded in spring are now beginning to make themselves felt, and they will contribute to keeping up price increases for some time to come. we also expect a slight decline in employment over the coming years, but employment in denmark will remain very high. to get inflation under control, the

s competitiveness by 20 per cent since 2000 should be viewed in that light. the fall in competitiveness was particularly strong in connection with the overheating of the danish economy in 2006 – 08, but a large part of the excess wage increase has been made up for in recent years, as wage inflation has been lower here than in competitor countries. in fact, denmark ’ s industrial production, which is to a large extent driven by exports, has risen more strongly than sweden ’ s since it dived in response to the financial crisis in the autumn of 2008. the reason why growth in gdp has, nevertheless, been lower than in sweden is bis central bankers ’ speeches weaker domestic demand as a result of the strong downturn in the danish housing market after the overheating, with a resultant loss of wealth and negative implications for private consumption. in general, it does not make sense to speak of “ structurally weak competitiveness ”. weak competitiveness is temporary, not permanent. after a while it will strengthen as a result of developments in wages and exchange rates. with the fixed - exchange - rate policy, denmark has deselected the latter option. over a period of time, extensive structural reforms have been introduced in denmark. these include reforms of pensions, taxation and unemployment benefits, to mention but a few examples. the reforms help to secure the future foundations of the danish economy and are also an element of credible economic policy. but in the short term they may initially have increased uncertainty in the population, thereby extending the recession slightly. however, this is not an argument for not taking action. obviously, we cannot talk about credible economic policy without mentioning the fixedexchange - rate policy. over the last 30 years, considerable credibility has been built up around this policy and no - one seriously questions it. when the financial crisis peaked in the autumn of 2008, the krone – like other small currencies – came under very strong pressure. combined with a number of crisis measures, the high degree of credibility helped to ensure that denmark weathered the crisis. thanks to the favourable balances and strong confidence in the danish economy, we have benefitted from the historically low interest rates in the wake of the financial crisis. this has buoyed up private - sector demand and hence also production and employment in recent years. both short - and long - term interest rates have fallen considerably since end - 2008. this is a concrete example of “ credibility counts ”, which is the theme of the auditors