Denmark

Politics:

• Analysis

  Denmark politics: Two new SF ministers appointed

  Two new SF ministers appointed

  After weeks of internal campaigning, the Socialist People's Party (SF) finally elected its new leader, who was then appointed as a minister in the centre-left government. This indicates the coalition's desire to refocus on domestic issues after holding the rotating presidency of the EU during the first half of the year and seeing its popular support wane in the meantime. However, policy orientation is not expected to change significantly.

  The SF, one of the junior coalition partners, held leadership elections in September and early October. Replacing Villy Soevndal, who resigned as party leader in September, Annette Vilhelmsen, 52, won the post of chairman on October 13th. As a result, the prime minister, Helle Thorning-Schmidt, appointed Ms Vilhelmsen as minister for growth and business on October 16th, to replace Ole Sohn, also from the SF. Ms Vilhelmsen's appointment is not expected to involve significant policy changes, although she is known to favour left-leaning policies. She will face the difficult task of reviving the country's struggling banking sector and overseeing the economy at times of financial and economic stress. A new wave of consolidation in Denmark's highly fragmented banking industry is expected during the coming year, following several packages already introduced over the years to support a sector hit by a property bubble.

  Holger K. Nielsen, a former head of the SF, was also appointed to replace Thor Moger Pedersen (also SF) as minister for taxation, so that the party retains six ministers out of 22 in the government.

  The cabinet reshuffle reflects an attempt by the prime minister to give fresh impetus to her government after nearly five weeks of inaction because of the SF's elections.

  Government suffers from high unpopularity

  The "red bloc" alliance of the Social Democrats, the SF and the more centrist Social Liberal Party ended a decade of centre-right rule in Denmark by winning the general election last year. However, times are now difficult for Ms Thorning-Schmidt's coalition. The prime minister's centre-left party, the Social Democrats, plunged to its lowest opinion poll ratings in at least decades. A recent survey for the newspaper Borsen put the Social Democrats on less than 17%, down sharply from 25% at last year's general election. A poll by the Ritzau news bureau showed the party with just 18.8% of the vote. The two other centre-left coalition partners have also seen their popular support dwindle since coming into power, but most importantly since the middle of the year.

  The government's fiscal and structural reforms passed this year with the support of some centre-right opposition parties have had a dramatic effect on public opinion. Reforms cutting early retirement pensions and the refusal to extend public employment benefits, in particular, have disappointed the coalition's traditional voter base. Indeed, the Social Democrats went back on their word and abolished the early retirement programme cherished by public-sector unions and employees. Other campaign promises were not kept, such as putting in place additional taxes on millionaires, cutting public transport costs or launching a congestion charge to reduce traffic in Copenhagen. Although the moderate stimulus package was intended to soothe the effect of these measures, it was too small to make any difference, in terms of both public opinion and the economy.

  Ms Thorning-Schmidt admitted to the media in early September that she and her cabinet should have spent more time communicating the measures and explaining their objectives. Now that Denmark's rotating presidency of the EU is over, she will be able to focus on the domestic scene. The opposition party Venstre has greatly benefited from the government's unpopularity, which should act as an incentive for the coalition to remain in power for as long as it can, fearing a harsh electoral backlash if an early election were held.

  October 25, 2012

• Background

  Denmark: Key figures

  Lars Lokke Rasmussen

  Mr Lokke Rasmussen, the previous prime minister, is the leader of the opposition party Liberals (Venstre), the biggest party in parliament. Although his party won a seat in the September 2011 elections, he had to resign in the face of falling support for its allies in the coalition government. He remains a strong figure in Danish politics and is expected to occupy a prominent role again in the future.

  Helle Thorning-Schmidt

  Leader of the Social Democrats since April 2005, she was appointed the first female prime minister after the September 2011 elections. Thanks to her efforts to develop ties with the Socialist People's Party, she was able to form a centre-left coalition government. However, opinion polls suggest that support for her coalition is weakening, which could result in an early election being called.

  Pia Kjaersgaard

  Leader of the populist Danish People's Party (DF). Ms Kjaersgaard's party campaigns on law and order issues, opposes EU membership and calls for strict refugee and immigration legislation and greater welfare benefits for the sick and the elderly. She has been successful in retaining the support of blue-collar workers who have traditionally backed the Social Democrats. Ms Kjaersgaard, as Denmark's longest-serving party leader, has given no indication of a wish to stand down and is unlikely to be challenged.

  August 20, 2012

• Structure

  Denmark: Political structure

  Official name

  Kingdom of Denmark

  Form of state

  Constitutional monarchy

  Legal system

  Based on the constitution of 1953

  National legislature

  Unicameral Folketing (parliament) of 179 members; the Folketing is elected for four years, but may be dissolved before the end of its term

  Electoral system

  Universal direct suffrage over the age of 18; under the Danish system of proportional representation (modified Saint-Laguë system), 135 seats are allocated on a constituency basis in the 17 multimember constituencies; the remaining seats are divided nationally and reallocated to constituencies based on a national share of the vote

  National elections

  September 15th 2011 (general), November 17th 2009 (local). Next general election to be held by 2015.

  Head of state

  Queen Margrethe II, who acceded to the throne in January 1972

  National government

  Cabinet headed by the prime minister, responsible to the Folketing; currently a three-party coalition composed of the Social Democrats, Socialist People's Party and the Social Liberal Party.

  Main political parties

  Liberal Party (V; 47 seats); Social Democrats (S; 44 seats); Danish People's Party (DF; 22 seats); Social Liberal Party (R; 17 seats); Socialist People's Party (SF; 16 seats); Unity List (EL; 12 seats); Liberal Alliance (9 seats); Conservative People's Party (KF; 8 seats).

  The government

  Prime minister: Helle Thorning-Schmidt (S)

  Deputy prime minister & minister for the economy & interior: Margrethe Vestager (R)

  Key ministers

  Business & growth: Ole Sohn (SF)

  Climate, energy & building: Martin Lidegaard (R)

  Defence: Nick Haekkerup (S)

  Development co-operation: Christian Friis Bach (R)

  Education: Christine Antorini (S)

  Employment: Mette Frederiksen (S)

  Environment: Ida Auken (SF)

  European affairs: Nicolai Wammen (S)

  Finance: Bjarne Corydon (S)

  Foreign affairs: Villy Sovndal (SF)

  Food, agriculture & fisheries: Mette Gjerskov (S)

  Health & prevention: Astrid Krag (SF)

  Justice: Morten Bodskov (S)

  Science, technology & innovation: Morten Ostergaard (R)

  Social affairs & integration: Karen Hækkerup (S)

  Taxation: Thor Moger Pedersen (SF)

  Trade & investment: Pia Olsen Dyhr (SF)

  Transport: Henrik Dam Kristensen (S)

  Central bank governor

  Nils Bernstein

  December 05, 2012

• Outlook

  Denmark: Key developments

  Outlook for 2013-17

  • The minority coalition of the Social Democrats, the Socialist People's Party (SF) and the Social Liberal Party has seen its poll ratings slump since taking power in October 2011. The risk of an early election has increased.
  • The prime minister, Helle Thorning-Schmidt, must bridge diverging views on core issues within the coalition, as she needs the far-left Unity List, or one or more of the centre-right opposition parties, for a parliamentary majority.
  • The next general election is scheduled for 2015, but the cohesion of the coalition came under stress when the prime minister agreed on a tax package with the centre-right opposition.
  • The SF expressed strong disapproval of the package, and Unity List withdrew its support. It could fail to back the government in the future.
  • Referendums might be held over the current parliamentary term on whether to scrap two of Denmark's EU opt-outs, but not on adopting the euro.
  • The Economist Intelligence Unit estimates that the budget deficit expanded to about 3.6% of GDP in 2012. Despite the government's long-term reform agenda, the budget is unlikely to return to surplus during the forecast period.
  • After reducing its interest rates in response to the decision by the European Central Bank (ECB) to lower its own rates, the Nationalbank (the central bank) is expected to remain active in protecting the krone's peg.
  • In early July the rate on certificates of deposit was -0.2% and the current-account rate was zero-an unusual situation, which is likely to persist.
  • The recovery from the recession of 2008-09 remains fragile. Real GDP growth is estimated to have decelerated in 2012, mainly as a result of a slowdown in export growth. GDP growth will rise only moderately thereafter.

  Review

  • The current-account surplus rose by 1.2% year on year in the third quarter, to Dkr29.2bn (US$4.9bn). The surplus in January-September was Dkr77.8bn, slightly higher than the Dkr75.1bn in the year-earlier period.
  • The deteriorating economic climate has subdued both inbound and outbound foreign direct investment (FDI) flows in 2012, following a substantial rise in 2011.
  • According to Statistics Denmark, manufacturing production fell in September, by a seasonally adjusted 3.3% month on month, a marked improvement from the 1.7% monthly contraction in August.

  December 05, 2012

Economy:

• Background

  Denmark: Country fact sheet

  Fact sheet

  Annual data	2011a	Historical averages (%)	2007-11
  Population (m)	5.6	Population growth	0.5
  GDP (US$ bn; market exchange rate)	332.0b	Real GDP growth	-0.6
  GDP (US$ bn; purchasing power parity)	227.9b	Real domestic demand growth	-0.8
  GDP per head (US$; market exchange rate)	59,460	Inflation	2.3
  GDP per head (US$; purchasing power parity)	40,821	Current-account balance (% of GDP)	4.0
  Exchange rate (av) Dkr:US$	5.4b	FDI inflows (% of GDP)	1.6
  a Economist Intelligence Unit estimates. b Actual.

  Download the numbers in Excel

  Background: Denmark is a founder member of NATO. It joined the European Community (now the EU) in 1973. The electorate has traditionally been suspicious of deeper political integration with the EU. The government negotiated four opt-outs from the 1992 Treaty on European Union (Maastricht treaty). Opinion has since become more favourable towards EU membership, and referendums on whether to remove at least some of the opt-outs may be held in the coming years.

  Political structure: The Folketing (parliament) is elected under a system of proportional representation and serves for a maximum of four years. After a decade of centre-right rule, the election in 2011 resulted in the formation of a minority centre-left coalition of the Social Democrats, the left-wing Socialist People's Party (SF) and the centrist Social Liberal Party. The government needs the support of the far-left Unity List or opposition parties to achieve a parliamentary majority.

  Policy issues: The government plans a modest fiscal stimulus in 2012, but will seek to narrow the budget deficit thereafter. Higher public spending in priority areas over the medium term, notably healthcare, implies a need for cuts in other areas. "Green taxes" will increase. Other policy priorities include improving the quality and efficiency of public services, raising the labour supply to offset a projected decline in the population of working age, the promotion of "green" technologies, and ensuring that Denmark remains a competitive environment for research and development activity.

  Taxation: Denmark has one of the highest tax burdens in the world. A progressive reduction in personal income taxes under the previous, centre-right government (in 2001-11) was partly offset by higher environmental and energy taxes. Green taxes and "sin" taxes will rise further under the current, centre-left coalition. The headline rate of corporation tax is 25%. Value-added tax (VAT) is levied on almost all goods and services at 25%. Holding companies are exempt from capital gains tax, which is levied at 34%.

  Foreign trade: The economy is highly open, with exports and imports accounting for 54% and 48% of GDP, respectively, in 2011. The EU remains the most important trading zone, accounting for around two-thirds of exports and just under three-quarters of imports. Trade with other countries has increased in recent years, with China becoming a more important source of imports. The current-account surplus is estimated at around US$22bn in 2011 (equivalent to 6.6% of GDP).

  Major exports 2011	% of total	Major imports 2011	% of total
  Machinery & transport equipment	25.1	Machinery & transport equipment	30.1
  Food, drinks & tobacco	17.6	Food, drinks & tobacco	13.2
  Chemicals & related products, n.e.s.	15.9	Chemicals & related products, n.e.s.	11.9
  Mineral fuels, lubricants & related materials	9.9	Mineral fuels, lubricants & related materials	9.2
  Leading markets 2011	% of total	Leading suppliers 2011	% of total
  Germany	16.6	Germany	20.9
  Sweden	13.0	Sweden	13.7
  UK	9.7	Netherlands	7.2
  Norway	5.6	UK	6.4

  Download the numbers in Excel

  Download text file (csv format)

  December 05, 2012

• Structure

  Denmark: Economic structure

  Data and charts: Annual trends charts

  
  

  

  December 05, 2012

• Outlook

  Denmark: Country outlook

  Denmark: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: The minority centre-left government--consisting of the Social Democrats, the Socialist People's Party (SF) and the centrist Social Liberal Party--took office in October 2011. Opinion polls suggest that important groups of swing voters have switched their allegiance to the centre-right opposition parties after the government abandoned several of its pre-election plans. Government stability will therefore be under moderate threat in the coming months.

  ELECTION WATCH: Following the general election in September 2011, the new government can serve a four-year term before the next election must be held. However, given that the government lacks an overall majority and faces a potentially shifting constellation of parliamentary partners, depending on the issue at hand, there is a moderate risk that an election will be held sooner. Denmark would thus probably see a change in majority.

  INTERNATIONAL RELATIONS: The change of government after ten years of centre-right rule has not heralded a radical shift from a long-standing strategy focusing on active membership of the EU, a close transatlantic relationship, and membership of NATO and the UN. European affairs will dominate foreign relations. Denmark's rotating EU presidency in the first half of 2012 yielded relatively few results. Denmark signed up to the "fiscal compact" agreement committing to closer fiscal co-ordination and oversight, but remains sympathetic to British concerns that policies affecting all 27 members (notably regarding the single market) should not be preordained by a "core" group. The country might consider pressing ahead with plans to remove two of Denmark's three opt-outs from EU co-operation--in the fields of the common foreign and security policy, and on justice and home affairs, but this would require a referendum. The turmoil in financial markets will keep the question of Danish membership of the euro area off the political agenda for years to come.

  POLICY TRENDS: The focus of economic policy has shifted under the centre-left government, but broad cross-party consensus exists on the economic challenges facing Denmark in the years ahead. The coalition has introduced an additional modest stimulus to the economy in 2012, but it retains the previous government's medium-term budget targets. It also introduced ceilings on public spending at the national, regional and municipal levels. Welfare and labour market reforms designed to increase work incentives will be crucial to medium-term fiscal consolidation. The government will also raise the early retirement age gradually from 60 (starting in 2014) and accelerate a scheduled rise in the state pension age of 65, even though before the election the Social Democrats and SF opposed a cross-party political agreement to do so. The centre-left coalition also agreed on a tax reform and discussions with the social partners on labour market reforms to raise labour supply. Longer-term policy priorities will be to address waning competitiveness, demographic change and the pressures, generally, on public spending, as laid out in a joint long-term policy initiative.

  ECONOMIC GROWTH: After suffering a contraction in the second half of 2011, the economy grew by 0.3% quarter on quarter in the first quarter of 2012, but contracted by 0.5% in the second quarter. It is estimated to grow by 0.1% in 2012 as a whole. Foreign demand was relatively resilient in the second quarter, with quarter-on-quarter growth of 2.5%. Domestic demand, however, fell by 0.9% quarter on quarter, and investment fell by 4.2%. Growth is forecast to recover to 0.9% in 2013 and an average of 1.7% in 2014-17, although downside risks will remain.

  INFLATION: EU harmonised inflation fell from 2.8% in the first quarter of 2012 to 2.2% in the second quarter, but rose to 2.5% in the third quarter. It is expected to strengthen over the rest of the year, reflecting the rise in commodity prices, and to average 2.5% in 2012. Indirect taxes and commodity prices will continue to put upward pressure on inflation. However, a persistent output gap will ensure that inflation remains benign, and the expected weakening of the krone:US dollar exchange rate should prevent a sharp fall. Inflation is forecast to remain relatively stable during 2013-17, averaging about 2.1%.

  EXCHANGE RATES: The krone is pegged to the euro at a central rate of around Dkr7.46:EUR1, within a band of ±2.25%. Against the US dollar, the krone will move in tandem with the euro, which will remain volatile in response to the region's debt and banking crises. The euro was trading at around US$1.3:EUR1 in mid-November 2012, but given persistent uncertainty over sovereign debt sustainability and banking solvency issues, the Economist Intelligence Unit forecasts that the euro will depreciate further in 2012-13. As a result, the krone will weaken from an average of Dkr5.37:US$1 in 2011 to Dkr5.81:US$1 in 2012 and about Dkr5.95:US$1 in 2013-17.

  EXTERNAL SECTOR: The trade surplus is expected to fall throughout 2013-17, on the assumption of a weak external environment and stable, albeit still-high, oil prices (Denmark is a net exporter of petroleum), and a more durable revival of domestic demand later in the forecast period. The services surplus has fallen in 2012 (partly owing to lower shipping receipts), but is expected to rise thereafter. The current account will receive additional support from a surplus on the income balance.

  December 07, 2012

• Forecast

  Denmark: Country forecast summary

  Country forecast overview: Highlights

  • A centre-left minority coalition took office in October 2011, ending a decade of centre-right rule. The prime minister, Helle Thorning-Schmidt, faces a difficult task in holding together a diverse coalition. Alongside her Social Democrats, this includes the economically liberal Social Liberal Party and the left-wing Socialist People's Party (SF). The coalition lost the support of the far-left Unity List after agreements with the centre-right opposition, and might have to rely on one or more of the centre-right parties to achieve a parliamentary majority. The government is expected to try to avoid an early election at all costs.
  • The coalition should be able to find sufficient common ground with smaller opposition parties to make progress on the government's legislative programme during the parliamentary year. The next general election is scheduled for 2015, but the cohesion of the coalition came under stress when the prime minister agreed a tax and labour market reform package with the centre-right opposition. The Social Liberal Party has seen its poll ratings slump since taking power in October 2011.
  • The government introduced an additional, modest stimulus to the economy in 2012 by accelerating public investment. It has also approved a reform negotiated by the previous government to increase the early retirement age from 2014. The reimbursement in 2012 of contributions paid into the early retirement scheme will result in a one-off cost to the state of around 1% of GDP. As a consequence, the budget deficit is expected to reach 3.6% of GDP in 2012. Given poor demographics, further action to raise the labour supply, or deeper spending cuts or additional tax increases, will be necessary to ensure fiscal sustainability over the medium term.
  • The recovery from the recession of 2008-09 remains fragile. Fiscal stimulus will provide some support to household spending and investment in 2012, but net household savings are expected to remain high for some time yet, given high household debt and the enduring weakness of the housing market. With external demand also subdued, real GDP growth is estimated to have slowed to 0.1% in 2012. Although it is forecast to creep up thereafter, assuming that the global economy revives from 2013, unfavourable demographics will prevent it from exceeding 2%.

  Country forecast overview: Key indicators

  Key indicators	2012	2013	2014	2015	2016	2017
  Real GDP growth (%)	0.1	0.9	1.5	1.7	1.9	1.8
  Consumer price inflation (av; %)	2.6	2.1	2.3	2.2	2.1	2.1
  Consumer price inflation (av; %; EU harmonised measure)	2.5	2.0	2.2	2.1	2.0	2.0
  Budget balance (% of GDP)	-3.6	-2.0	-1.2	-0.9	-0.7	-0.5
  Current-account balance (% of GDP)	5.6	6.1	5.7	4.9	4.7	4.4
  Short-term interest rate (av; %)	0.6	0.4	0.7	1.2	1.9	1.9
  Exchange rate Dkr:US$ (av)	5.81	5.91	5.96	6.03	5.92	5.93
  Exchange rate Dkr:US$ (year-end)	5.78	5.94	6.04	5.94	5.93	5.94
  Exchange rate Dkr:€ (av)	7.46	7.46	7.46	7.46	7.46	7.46
  Exchange rate US$:€ (av)	1.28	1.26	1.25	1.24	1.26	1.26

  Download the numbers in Excel

  Download text file (csv format)

  December 05, 2012

View detailed map

Country Briefing

Land area

43,075 sq km (excluding Greenland and the Faroe Islands), of which 66% is designated for agriculture, 11% forested

Population

5,534,738 (January 1st 2010, excluding Greenland and the Faroe Islands)

Main municipalities

Population in '000 (January 1st 2010)

Copenhagen (Kommune—capital): 528

Herning (Kommune): 306

Aalborg (Kommune): 197

Odense (Kommune): 189

Esbjerg (Kommune): 115

Vejle (Kommune): 106

Climate

Temperate

Weather in Copenhagen (altitude 9 metres)

Hottest month, July, 14-22°C (average daily minimum and maximum); coldest month, February, -3-2°C; driest month, March, 32 mm (average monthly rainfall); wettest month, July, 71 mm

Language

Danish

Weights and measures

Metric system

Currency

1 krone (Dkr, with plural kroner) = 100 ore

Fiscal year

January-December

Time

1 hour ahead of GMT, with daylight saving time in summer months

Public holidays

January 1st; April 5th, 6th, 8th, 8th; May 4th, 17th, 27th, 28th; December 25th and 26th

March 12, 2012