Economic studies
Denmark

Denmark

Population 5.7 million
GDP per capita 56,631 US$
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Synthesis

major macro economic indicators

  2016 2017 2018 (e) 2019 (f)
GDP growth (%) 2.4 2.3 1.4 1.6
Inflation (yearly average, %) 0.3 1.1 0.8 1.2
Budget balance (% GDP) -0.4 1.1 0.2 -0.1
Current account balance (% GDP) 7.9 8 5.9 6.1
Public debt (% GDP) 37.3 35.6 33 32.2

 

(e): Estimate. (f): Forecast.

STRENGTHS

  • World’s fifth largest shipping operator
  • Energy self-sufficiency (oil in the North Sea and Greenland); net energy exporter
  • Niche industries (renewable energy/biotechnology)
  • Well managed public finances
  • Large current account surplus
  • Krone pegged to the euro

WEAKNESSES

  • Small open economy sensitive to external demand
  • Government instability related to the fragmentation of Parliament
  • Very high household debt (272% of disposable income)
  • Public sector constitutes a significant part of the country’s employment (30% of employees in August 2018)
  • Tensions over housing in some cities

Risk assessment

Growth still dynamic, driven by domestic demand

Growth will remain resilient in 2019 thanks to strong private consumption and investment. Household consumption will continue to be driven by a buoyant labour market, characterised by full employment (unemployment rate at 3.9% in September 2018), and the resulting increase in wages. Between three and four million homeowners will receive property tax refunds in 2019, due to the reduction in the tax base, in line with the reform of the property valuation system. Inflation will accelerate slightly but is expected to remain moderate. As a result, the central bank should maintain an accommodative monetary policy in 2019, in line with that of the ECB. In addition to this particularly favourable financial environment – the key interest rate is at a record low 0% –, households will benefit from the wealth effect linked to rising house prices. However, although household debt has been falling since 2014, it remains the highest in the OECD, coming in at 272% of disposable income in 2017. In parallel, investment will be supported by supply constraints, with production capacity utilisation rates and recruitment difficulties at their pre-2008 crisis levels. Shipping, which accounts for 50% of exports of services, will be affected by the slowdown in world trade, and the impact will be even greater if protectionist measures are increased. Although house prices have softened in Copenhagen, residential construction is expected to remain brisk thanks to the improvement in the financial situation of households. The energy sector (oil and gas) will benefit from continued high prices. The slowdown in the main partner countries will affect exports and reduce external trade’s growth contribution, which could turn negative.

Prudent fiscal policy and a substantial current account surplus

The government will maintain its prudent fiscal policy and is not expected to increase public spending, in order to avoid a risk of overheating given the low unemployment rate. The few increases will be concentrated in the social sector (healthcare, early childhood, the elderly) and the environment, but will be very limited (less than 0.1% of GDP). The government deficit and public debt, which are both already well below the thresholds set by the European Stability and Growth Pact (3% and 60% of GDP respectively), will continue their downward trend.

Denmark will continue to run a large current account surplus in 2019. The trade balance will still generate a significant surplus (over 6% of GDP), although imports, driven by domestic demand, are expected to be more dynamic than exports. Exports will be hurt on the one hand by cooler growth in the EU and the United States, and on the other hand by Brexit, which will reduce demand from the United Kingdom. Exports of agricultural products, including pork and dairy products, which account for 20% of exports to the UK, would be particularly affected if the country leaves without an agreement, as they are subject to substantial customs duties (up to 40% depending on the product). However, exports to the UK have diversified significantly in recent years, with the share of machinery and equipment increasing from 20% to 40% of the total between 2015 and 2017. The income balance is also in surplus, thanks to the income of Danish companies abroad. External debt remains considerable, at around 150% of GDP in the second quarter of 2018, but has been gradually declining since 2013. The Danish financial sector, which is interconnected with its Nordic counterparts, accounts for two thirds of this debt.

The left slightly ahead in the polls

Prime Minister Lars Lokke Rasmussen leads a centre-right government coalition composed of his own Liberal Party, the Liberal Alliance (LA) and the Conservative People's Party (KF). This minority coalition (53 MPs out of 179) depends on the support of the far-right Danish People's Party (DF), which has 37 MPs, but which did not wish to participate in the government. The Prime Minister's term of office, which will end no later than June 2019, has been marked by significant disagreements between the coalition parties, compounded by the demands of the DF. The outcome of the 2019 parliamentary elections – which will be affected by the scandal over money laundering involving the Estonian subsidiary of Danske Bank, Denmark’s leading bank, between 2007 and 2015 – remains uncertain: at the end of October 2018, polls showed 51% support for the left against 49% for the right-wing parties, including the DF. According to the polling data, the balance of power has changed little since the 2015 elections: the Social Democratic Party (SD), led by the former Minister of Employment and then Justice, Mette Frederiksen, is predicted to win, followed by the Liberal Party and the DF in a neck-and-neck race for second.

With local elections confirming Greenland's desire to gradually move towards independence (the Arctic being a region potentially rich in mineral, oil and gas resources), Denmark will inevitably have to address this issue in the medium term.

 

Last update : February 2019

Payment

Denmark is in the process of becoming a cashless society and bank transfers are the most commonly used means of payment. All major Danish banks use the SWIFT network, as it is a rapid and efficient solution for the payment of domestic and international transactions. Denmark has also implemented the Single Euro Payments Area (SEPA) in order to simplify bank transfers in euros.

Cheques and bills of exchange are now seldom used in Denmark. Both are seen as an acknowledgement of debt.

Unpaid bills of exchange and cheques that have been accepted are legally enforceable instruments that mean that creditors do not need to obtain a court judgement. In cases such as these, a “judge-bailiff” (Fogedret) is appointed to oversee the enforcement of the attachment. Prior to this, the debtor is summonsed to declare his financial situation, in order to establish his ability to repay the debt. It is a criminal offence to make a false statement of insolvency.

Debt collection

Amicable phase

The amicable phase begins with the creditor, or his legal counsel (e.g. attorney, licenced collection agency, etc.), sending the debtor a final demand for payment by post, in which he is given ten days to settle the principal amount, plus any penalties for interest provided for in the initial agreement.

Once the ten days from the date of the letter of demand have expired, the creditor’s legal counsel can charge the debtor for out of court collection costs (based on an official tariff) and present the debtor with a debt collection letter which gives them ten further days to pay. If this payment deadline is not respected, the debtor can be sent a warning notice which sets out the date and time of a visit. A third reminder can be sent and calls can be made.

When no specific interest rate clauses have been agreed by the parties (maximum of 2% per month),the rate of interest applicable to commercial agreements contracted after 1st August 2002 is either the Danish National Bank’s benchmark, or the lending rate (udlånsrente) in force on 1st January or 1st July of the year in question, plus an additional 8%.

 

Legal proceedings

Fast-track proceedings

Since 1st January 2008, overdue payments which do not exceed 50,000 Danish kroner (DKK) or EUR 6,723 and are uncontested are handled via a simplified collection procedure (forenklet inkassoprocedure), whereby the creditor submits an injunction form directly to the judge-bailiff for service on the debtor. If there is no response within 14 days, an enforcement order is issued.

 

Ordinary proceedings

If a debtor fails to respond to a demand for payment, or if the dispute is not severe, creditors can obtain a judgement following an adversarial hearing or a judgement by default ordering the debtor to pay. This usually takes three months.

In the case of a judgement by default, the debtor can be ordered to pay the principal amount plus interest and expenses (including court fees and, where applicable, a contribution to the creditor’s legal costs) within 14 days.

All cases, whatever the size of the claim and level of complexity, disputed or not, are heard by the court of first instance (Byret). The court is presided over by a panel of three judges, or one judge assisted by experts, who consider both written and orally-presented evidence.

Appeals on claims which exceed DKK 10,000 are heard by one of two regional courts - either the Vestre Landsret in Viborg (for the Jutland area) or the Østre Landsret in Copenhagen (for the rest of the country). Exceptional cases that involve questions of principle can be submitted directly to the appropriate regional court.

These proceedings involve a series of preliminary hearings, during which the parties present written submissions and evidence, and a plenary hearing, in which the court hears witness testimonies and arguments from both parties.Court costs depend on the value of the claim. The losing party generally bears the legal costs.

Denmark only has commercial courts in the Copenhagen area. These comprise a maritime and a commercial court (Sø-og Handelsretten) which are presided over by a panel of professional and non-professional judges. These judges are competent to hear cases involving commercial and maritime disputes, competition law, insolvency proceedings and cases involving international trade.

Enforcement of a legal decision

Domestic judgements become enforceable when all appeal venues have been exhausted. If the debtor fails to comply with the judgment within two weeks, the creditor can have it enforced through the bailiff’s Court. Enforcement can take the form of a payment arrangement, or a seizure of the debtor’s assets. Payment plans are normally agreed in court and the debtor’s assets that can be seized are normally agreed at the same time. Courts normally accept payment plans of up to ten to twelve months depending on the amount.

As concerns foreign awards, the scenario can be more difficult if the decision is issued by an EU member, as Denmark does not adhere to the EU regulations on European Payment Order procedures. Decisions issued by non-EU members can be recognised and enforced, provided that the issuing country is part of a bilateral or multilateral agreement with Denmark.

Insolvency proceedings

Out-of-court proceedings

Non-judicial restructuring can take place through formal composition agreements, whereby the debts owed to the creditors are acknowledged and payment instalment agreed upon, without having recourse to a judge. Nevertheless, as Danish courts are an efficient solution, out-of-court proceedings tend to be used as informal negotiation tools.

 

Restructuring proceedings

Restructuring procedures are based on decisions handed down by the bankruptcy court. The court examines the possibility of a compulsory composition and/or a business transfer. These proceedings can be initiated by the debtor, in cases of insolvency, or by the creditor (but only with respect to legal entities). The court then appoints a restructuring administrator. The debtor maintains control of his assets during the procedure but is not allowed to enter into transactions of material significance without the consent of the restructuring administrator. The outcome of the procedure depends on the administrator’s proposal.

 

Liquidation

Liquidation procedures are based on bankruptcy orders issued by the Court, either at the request of the debtor or a creditor. The debtor must be insolvent. The Court appoints a trustee who is authorised to act in all matters on behalf of the bankrupt estate. His primary objectives are to liquidate the debtor’s assets and distribute the proceeds between the creditors. Creditors need to file their claims with the trustee for assessment.

Insolvency trend Denmark
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