Reforms can help to maintain growth

May 2006
OECD Economic Surveys: Denmark;May2006, Vol. 2006 Issue 7, p19
Country Report
Country Report
The recent performance of the Danish economy is impressive with above-trend GDP growth, decreasing unemployment and high budget and current account surpluses. However, this chapter argues that there is now a risk of overheating, not least as the monetary policy stance that Denmark "imports" from the euro area through its fixed exchange rate regime is quite expansionary in the current situation. This is reinforced by a stronger transmission of interest rate changes to the real economy than in previous cycles. Rapidly increasing house prices -- which seem to lose touch with fundamentals -- add further stimulus to private consumption. The chapter discusses the policy options to ease near-term capacity constraints: continuing a prudent fiscal policy and boosting labour supp]F Such policies are also necessary for long-run fiscal sustainability. Finally, the chapter analyses productivity growth and the role of terms-of-trade trends, which are one aspect of how globalisation affects the economy.


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