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Sustaining prosperity and wellbeing OECD Economic Survey Denmark 2019 Copenhagen 15 January
The document provides an economic survey of Denmark by the OECD. Key points include: - Denmark's economy is growing after a long recovery, though productivity growth is lagging, especially in the services sector. - Public finances are sustainable if retirement ages continue to rise as planned. - The financial sector is very large and household debt remains high despite decreases. - High digitalization in Danish firms has not yet boosted productivity, and mark-ups are rising in some sectors.
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Sustaining prosperity and wellbeing OECD Economic Survey Denmark 2019 Copenhagen 15 January
- 1. 2019 OECD ECONOMIC SURVEYOF DENMARK Sustaining prosperity and wellbeing Copenhagen, 15 January 2019 http://www.oecd.org/eco/surveys/economic-survey-denmark.htm @OECDeconomy @OECD
- 2. Key messages Policy shouldtake advantage of the good economic conditions Hard decisions are required to further reduce financial vulnerabilities Boosting productivity is the key challenge to sustain high living standards
- 3. The economy isgrowing after a long recovery GDP per capita Thousand USD, constant prices, 2010 PPP Note: Other Nordics is a simple average of Finland, Iceland, Norway and Sweden. Euro area is a weighted average (19 countries). Source: OECD National Accounts database. 30 35 40 45 50 55 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 DNK Other Nordics Euro area USA
- 4. -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 CHE BEL FINFRA NLD AUT DNK GBR USA CAN NOR SWE DEU OECD AUS IRL GDP per capita Export pricesrelative to import prices Net income from abroad GNI per capita Other factors have lifted real incomes and compensated for weak economic growth Real income growth per capita Average annual growth, 2000-2017 Source: OECD National Accounts.
- 5. 22 21 14 9 9 7 43 3 2 1 Housing Health status Income Education & skills Personal security Environmental quality Jobs & earnings Civic engagement & governance Social connections Work & life balance Subjective well-being 20% top performers 60% middle performers 20% bottom performers Denmark Wellbeing ranks at the top in most dimensions Source: OECD Better Life Index 2017 database. OECD Better Life Index Country rankings from 1 (best) to 35 (worst), 2017
- 6. Gender gaps areslowly closing Note: The participation gap is defined as the difference in labour force participation rates for men and women aged 15-64. Source: OECD Labour Force Statistics. Labour market participation gap 0 5 10 15 20 25 30 0 5 10 15 20 25 30 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 % points% points DNK Other Nordics OECD
- 7. Employment rates forforeign-born are close to OECD averages – but the gaps to natives are sizeable Men Women Source: OECD Migration Statistics. 40 50 60 70 80 90 FRA BEL FIN SWE DNK NLD AUT NOR DEU OECD GBR % Foreign-born Native-born 40 50 60 70 80 90 BEL FRA FIN NLD AUT DNK OECD DEU SWE GBR NOR % Foreign-born Native-born Employment rates by place of birth for age 25-64 2017
- 8. Employment growth hasbeen strong – though not as strong as in other OECD countries Employment growth over the last 5 years %-change of number of persons employed, 2013Q3-2018Q3 Note: Employment rate for age 15-64. Source: OECD Labour Force Statistics. 40 45 50 55 60 65 70 75 80 85 90 0 2 4 6 8 10 12 14 16 18 20 NZL LUX IRL ISL HUN ESP ISR TUR SVK GRC AUS PRT MEX SWE USA GBR OECD CHL SVN CZE CHE NLD DNK EST DEU POL LTU JPN KOR BEL CAN ITA AUT FRA NOR FIN LVA %% Employment growth, 2013Q3-2018Q3 Employment rate, 2013Q3 (right axis)
- 9. 1.0 1.2 1.4 1.6 1.8 2.0 2.2 3 4 5 6 7 8 9 2005 2007 20092011 2013 2015 2017 % Unemployment rate¹, left scale Job vacancy rate, rightscale % of labour force The labour market is tightening 0 5 10 15 20 25 30 35 40 45 50 2005 2007 2009 2011 2013 2015 2017 Manufacturing Construction Services 1. Statistical break in 2016Q1 and 2017Q1. Source: OECD Short-Term Labour market Statistics; Statistics Denmark. Unemployment and vacancies Labour shortages % of firms reporting labour shortages
- 10. Monetary conditions remainvery accommodative – reflecting the peg to the euro Source: Danmarks Nationalbank. Central bank lending rate Certificates of deposit rate -2 -1 0 1 2 3 4 5 6 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 %
- 11. 2017 2018 20192020 Gross domestic product (GDP) 2.3 1.2 1.9 1.6 Private consumption 2.1 2.5 2.2 2.2 Government consumption 0.7 0.5 0.5 0.4 Gross fixed capital formation 4.6 7.7 1.5 3.3 Exports of goods and services 3.6 -0.5 2.8 3.0 Imports of goods and services 3.6 2.9 2.2 3.8 Unemployment rate 5.7 5.2 5.1 4.9 Consumer price index 1.1 0.9 1.8 2.0 Growth is projected to continue, but moderate Economic growth projections Annual percentage change, volume Note: Unemployment rate is % of labour force. A statistical recording of the export of a single pharmaceutical patent has distorted GDP data, boosting growth in 2017 and reducing it in 2018. Source: OECD Economic Outlook 104 database.
- 12. A hard Brexitwould hit Danish agri-food and manufacturing sectors hard … Simulated impact on sectoral exports Size of circles represent the sectoral share of total Danish exports Source: OECD calculations using the METRO model. Reduction in total exports, % ReductioninexportstotheUK,% Agri-food Energy & Natural Resources Materials manufacturing Chemicals Metals Motor vehicles and parts Transport equipment Electronic equipment Machinery and equipment nec Manufactures nec Construction & Utilities Trade Transport & Communication Financial & Insurance Business services -30 -25 -20 -15 -10 -5 0 -30 -25 -20 -15 -10 -5 0 -4 -3 -2 -1 0 1 2 3 4
- 13. … Making Denmarkamong the most exposed countries to a hard Brexit Trade with the United Kingdom % of GDP Source: OECD calculations using the METRO model. -25 -20 -15 -10 -5 0 Exports to the UK GDP (right scale) B. The effect of Brexit on exports and GDP % DNK NLD IRL -5 -4 -3 -2 -1 0 0 4 8 12 16 Exports to the UK Imports from the UK A. Trade in goods and services % GDP, 2016 DNK NLD IRL Simulated effect of a hard Brexit on exports and GDP %
- 14. -4 -3 -2 -1 0 1 2 2010 2011 20122013 2014 2015 2016 2017 2018 2019 2020 % of GDP The government budget balance has gradually improved Note: Extraordinary tax revenues (including a pension restructuring) drive the surpluses in 2014 and 2017. Source: OECD Economic Outlook 104 database. General government budget balance
- 15. Ambitious indexation ofstatutory retirement ages to life expectancy is planned Source: Danish Government (2018); OECD Labour Force Statistics. Planned indexation of statutory retirement ages 55 60 65 70 75 80 85 90 95 100 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 Age Statutoryretirement age Earlyretirement age Life expectancy at age 60 50 55 60 65 70 75 80 2010 2011 2012 2013 2014 2015 2016 2017 % DNK SWE NOR OECD Senior employment is rising Employment rate for age 55-64
- 16. Public finances aresustainable – if retirement ages rise as planned Note: Baseline with indexation to life expectancy assumes that the statutory and early retirement ages are increased by up to one year every five years according to the adopted indexation mechanism. The alternative assumes no rise from 2030 onwards. Source: OECD calculations based on the Danish Government (2018). Government budget balance Government gross debt -5 -4 -3 -2 -1 0 1 2 3 4 5 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 Baseline with indexation Fixed statutory retirement ages from 2030 % of potential GDP 0 10 20 30 40 50 60 70 80 90 100 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 Baseline with indexation Fixed statutory retirement ages from 2030 % of GDP
- 17. • Gradually tightenfiscal policy to reflect the economic upturn and build fiscal space for a future setback • Increase flexibility in the provision of childcare services to further narrow gender gaps in the labour market • Encourage parents to split parental leave more equally by reserving the share reserved for each parent • Spread best integration practices across municipalities and strengthen co-ordination of services • Improve the integration-training programme in collaboration with social partners and make it permanent • Reform public sector collective bargaining towards broader and higher-level agreements, allowing more bargaining at the local level • Implement the most cost-efficient greenhouse gas emission reductions first Recommendations to sustain inclusive growth and improve public sector efficiency
- 18. The financial sectoris very large Financial corporations Total financial assets by subsector, 2017 Note: Other financial institutions includes non-MMF investment funds. Based on unconsolidated data. Source: OECD Financial Accounts. 0 250 500 750 1000 1250 1500 0 250 500 750 1000 1250 1500 TUR LTU POL SVN SVK EST CZE LVA GRC HUN ISR FIN NOR AUT ITA ESP PRT KOR DEU USA BEL SWE ISL FRA CAN JPN DNK CHE GBR NLD IRL LUX % of GDP% of GDP Monetary financial institutions Insurance and pension funds Other financial institutions 2,261 24,063
- 19. Household gross debthas decreased but is still very high 0 50 100 150 200 250 300 350 2000 2002 2004 2006 2008 2010 2012 2014 2016 0 100 200 300 400 500 600 700 800 900 0 50 100 150 200 250 300 350 LVA HUN SVN POL CZE ITA SVK EST DEU AUT ISR GRC USA FRA JPN BEL ESP PRT FIN GBR IRL CAN KOR AUS SWE NOR NLD DNK Household gross debt Total networth of households (right scale) Household gross debt and net worth % of gross household disposable income Source: OECD Economic Outlook database. Over time Across countries
- 20. House prices haverisen rapidly in Copenhagen Real house price index 2000=100 Note: Deflated by private consumption deflator. Source: Statistics Denmark. 70 120 170 220 270 320 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Owner-occupied flats One-family houses
- 21. Taxation of householdcapital income favours owner-occupied housing Note: The marginal effective tax rate summarises the tax on investing one additional currency unit across different assets with an expected holding period of five years (20 years for pension funds and housing). The tax rates are adjusted for country-specific inflation over the period 2011-16. Source: OECD (2018), Taxation of household savings. Marginal effective tax rates across asset types Average-rate tax payer, 2016 -20 -10 0 10 20 30 40 50 60 70 -20 -10 0 10 20 30 40 50 60 70 Bank deposits Corporate bonds Shares Private pensions Owner occupied property %% DNK OECD median country
- 22. • Reduce deductibilityof interest expenses in personal income taxation • Deregulate the rental market and remove favourable conditions for parents to buy-to-let flats to their children • Review the pension and tax system and implement reform to ease personal financial planning • Improve prudential supervision and international collaboration by joining the European Banking Union • Increase scrutiny and implement more severe penalties for money-laundering activities Recommendations to strengthen resilience of households and the financial sector
- 23. High digitalisation infirms has not (yet) boosted productivity growth Firms with high digital intensity 2017 Labour productivity growth Total economy, annualised growth, 2000-2017 0 10 20 30 40 50 60 70 LVA ITA GRC POL HUN FRA SVK CZE EST SVN IRL LUX EU PRT AUT ESP DEU LTU SWE NOR BEL FIN NLD DNK % Source: European Commission, Digital Scoreboard 2017; OECD Productivity database. 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 LUX NOR BEL NLD CHE FRA GBR CAN DNK JPN DEU FIN AUT OECD AUS SWE USA ISL IRL
- 24. Productivity growth islagging behind in services Over time Annualised labour productivity growth Across countries Annualised labour productivity growth, 2000-2015 Source: OECD Productivity database and OECD calculations based on OECD STAN database. 0 1 2 3 4 5 Business economy Manufacturing Private sector services % 1990-2000 2000-2010 2010-2017 0 1 2 3 4 5 Private sector services Less knowledge- intensive services Knowledge-intensive services % DNK Other Nordics OECD USA
- 25. Mark-ups are stableon average, but on the rise in certain sectors Average mark-up rate in Danish firms Main sector of activity Note: Mark-up rates are calculated at the industry level as the ratio between operating surplus and input costs. Source: Égert and Vindics (2018). 1 1.2 1.4 1.6 1.8 2 1 1.1 1.2 1.3 1.4 1.5 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Total economy Retail trade ICT services Pharmaceutical products (right scale)
- 26. Business investments arepicking up and shifting towards intangibles Source: OECD Economic Outlook database; Statistics Denmark. Total business investments Composition of business investments 9 10 11 12 13 14 15 16 17 18 2000 2002 2004 2006 2008 2010 2012 2014 2016 % of GDP DNK SWE DEU 1 2 3 4 5 6 7 8 2000 2002 2004 2006 2008 2010 2012 2014 2016 % of GDP Intellectual property products Buildings and structures Machinery, ICT and transport equipment
- 27. The average taxwedge and the corporate income tax rate are close to OECD averages Note: The average tax wedge comprises income taxes plus employee and employer social security contributions for a single household with average wage. Source: OECD Tax database Average tax wedge 2017 Corporate income tax rate 2018 0 10 20 30 40 50 60 CHE IRL AUS CAN GBR USA JPN ISL OECD NOR DNK LUX NLD SWE FIN AUT FRA DEU BEL % 0 5 10 15 20 25 30 35 40 CHE IRL CAN DEU GBR LUX FIN ISL USA OECD DNK SWE NOR JPN AUT NLD BEL AUS FRA %
- 28. AUS AUT BEL CAN CHLCZE DNK EST FIN FRA DEU GRC HUN ISL IRL ISR ITA JPN KOR LVA LUX MEX NLD NZL NOR POL PRT SVK SVN ESP SWE CHE TUR GBR USA OECD 20 25 30 35 40 45 50 55 60 65 70 20 25 30 35 40 45 50 55 60 65 70 20 2530 35 40 45 50 55 60 65 70 Overall PIT+CIT rate on dividend income, %,2017 Top marginal tax rate on labour income, %, 2017 Top marginal tax rates on labour and capital income are very high Note: The top marginal tax rate includes personal income tax and employee social security contributions (All-in rate). The overall personal and corporate income tax (PIT+CIT) rate on dividend income reports the overall tax rate on distributed profit, Taking into account taxation prior to distribution and at the household level, showing the highest rate. Source: OECD Tax database.
- 29. Business R&D ishighly concentrated in pharmaceuticals and biotechnology Danish companies among the world top 1000 R&D investors 2017 world ranking in parenthesis Note: Annual R&D spending at the corporate group level. Pharmaceuticals and biotechnology companies in red. Source: EU R&D Scoreboard data. 0 250 500 750 1000 1250 1500 1750 2000 GN STORE NORD(950) WILLIAMDEMANT (890) GRUNDFOS (702) FERRING PHARMACEUTICALS (654) VESTAS WIND SYSTEMS (487) NOVOZYMES (468) LEO PHARMA (441) DANFOSS (383) H LUNDBECK (330) DANSKE BANK (287) NOVO NORDISK (68) EUR million
- 30. 0.0 0.1 0.2 0.3 0.4 0.5 0.0 0.1 0.2 0.3 0.4 0.5 FRA BEL IRL KOR HUN AUT GBR USA NOR NLD AUS SVN SWE ISL CAN PRT JPN ISR ITA CZE TUR DNK ESP NZL DNK FIN DEU POL MEX LUX CHE GRC LTU EST SVK CHL LVA % of GDP%of GDP Direct government funding of BERD Tax incentive support for BERD Estimate after 2017 reform Public support to business R&D is relative low – even after reform Direct government funding of business R&D and tax incentives for R&D, 2015 or latest available year Source: OECD, R&D Tax Incentive Indicators.
- 31. 0 5 10 15 20 25 30 35 40 45 0 5 10 15 20 25 30 35 40 45 CZE KOR DEU SVK CHL EST AUT CAN ISR ESP POL SVN FRA FIN GRC IRL NZL NOR SWE DNK ITA TUR JPN USA AUS NLD The share ofscience (STEM) graduates is low Tertiary educated adults with STEM as a % of 25-64 year old non-students, 2015 Note: STEM refers to science, technology, engineering and mathematical subjects. Source: OECD Survey of Adult Skills (PIAAC).
- 32. Labour market returnsto ICT tasks – and skills in general – are relatively low 0 5 10 15 20 25 0 1 2 3 4 5 ISR TUR DNK GRC ITA FRA SVN NOR POL CHL AUS SWE AUT SVK NZL ESP LTU BEL FIN DEU CZE GBR NLD EST CAN IRL JPN KOR USA %% Returns to ICT tasks¹ Returns to skills² (right scale) 1. Percentage change in hourly wages for a 10% increase in ICT task intensity. Labour market returns to task intensities are based on OLS wage regressions (Mincer equations) using data from the OECD Survey of Adult Skills (PIAAC) (Grundke et al. (2018). 2. Percent increase in hourly wages for a standard deviation increase in numeracy. Data show the coefficients on numeracy scores from country-specific regressions of log hourly wages (including bonuses) of wage and salary earners (in PPP corrected USD) on proficiency scores standardised at the country level. Source: OECD STI Scoreboard 2017; OECD Employment Outlook 2015.
- 33. Dependence on foreignworkers has increased substantially Inflow of migrants with a work purpose Source: Statistics Denmark. 0 5 10 15 20 25 0 5 10 15 20 25 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 ThousandThousand EU non-EU
- 34. Strengthen incentives throughthe tax system • Reduce top marginal tax rates on labour and capital income • Withdraw reduced inheritance taxation of family-owned businesses • Implement an allowance for corporate equity (ACE) • Broaden public support to business R&D through well- designed R&D grants and tax credits for incremental R&D expenses Recommendations to boost productivity growth (1)
- 35. Refining the competitionframework • Provide greater power to competition authorities to impose administrative fines and structural remedies within constitutional constraints • Develop clearer standards for exemptions from the Competition Act and involve competition authorities in their determination Ensuring supply of the right skills • Strengthen incentives by reducing student grants for tertiary education and relying more on students loans • Assess whether current visa schemes for non-EU workers sufficiently address skill needs and consider simplifying entry procedures Recommendations to boost productivity growth (2)
- 36. Disclaimers: The statistical datafor Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. Follow us on twitter: For more information http://www.oecd.org/eco/surveys/economic-survey-denmark.htm OECD Economics OECD