Denmark Economy In Europe 2023 [Facts & History]

There is a heavy reliance on foreign commerce and government services as well as a high standard of living in Denmark’s modern mixed economy. The service sector accounts for 80% of all jobs while manufacturing accounts for 11% and agricultural for 2%.

Denmark Economy In Europe 2023 [Facts & History]

In 2020, the country had the seventh-highest nominal gross national income per capita, at $58,439. When adjusted for purchasing power, the per capita income in Int$57,781 ranked 10th worldwide.

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While income is fairly shared, inequality has grown in recent decades.

This growth was attributed to a combination of factors, including a wider gap in gross earnings and changes in economic policy. Denmark ranked seventh among the then-28 member states of the European Union in terms of economic inequality as measured by the Gini coefficient in 2017.

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Despite having just 5,892,871 people as of 1 May 2022, Denmark has the 36th largest national economy in the world in terms of nominal GDP and the 51st largest in terms of purchasing power parity (PPP).

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A fixed exchange rate system has been in place in Denmark for many decades. The Danish krone is one of only two independent currencies in the OECD to be tied to the euro while still being part of the organization.

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In a referendum held in 2000, Danes voted against switching from the krone to the euro, despite being qualified to join the European Union’s Economic and Monetary Union (EMU).

Denmark’s central bank places higher importance on exchange rate stability than do its neighbors Norway, Sweden, Poland, and the United Kingdom, all of which pursue inflation targeting in their monetary policy. As a result, there is no need for a central bank-led domestic stabilization strategy. The central bank has kept its interest rate at a negative level since February 2015 to stem the increasing pressure on the currency exchange rate.

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Denmark Labour Force

When compared to the rest of the world, the labor force participation rate in this country is exceptionally high, especially among women. Seventy-eight percent of the population between the ages of fifteen and sixty-four participated in the labor force in 2017, the sixth highest rate among the OECD nations.

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Denmark Unemployment Rate

Compared to other European countries, the unemployment rate is quite low. As of October 2018, the unemployment rate in Denmark was 4.8%, lower than the EU average of 6.7%. A minimum wage is not mandated by law in Denmark. There has historically been a large proportion of workers covered by unions and collective bargaining agreements in the labor market.

Denmark Taxation System

The concept of flexicurity has always been significant in Danish society, and the country spends considerably in active labor market regulations. Typical of the Nordic model is Denmark, which has both a high tax rate and a generous array of publicly funded programs and services (e.g. health care, child care and education services).

People in certain demographics receive monetary assistance in the form of pensions, disability payments, unemployment benefits, educational grants, etc. In total, tax payments in 2017 equaled 46.1% of GDP. The fiscal policy of Denmark is generally regarded as sound.

In 2017, the federal government’s net debt was under 1.3% of GDP. A hallmark of Danish fiscal policy is a focus on the long term, with an eye toward anticipated fiscal needs. One potential threat to government spending in the decades ahead was identified in the 2000s.

The longer people lived, in particular, posed a problem for the government’s ability to maintain its current standard of living. Public age-related transfer eligibility requirements were tightened as a result.

Both official and non-official estimates of future budgetary issues have found the Danish government’s policies to be sustainable since 2012. More recently, it has been criticized for being too long-lasting.

Wealth and Income Distribution In Denmark

When compared to other countries, the average per capita income is quite high. At $55,220 in 2017, it has the world’s tenth-highest per capita GDP, according to the World Bank. After adjusting for purchasing power, the per capita income of Int$52,390 placed it sixteenth among the 187 countries studied.

Danes have been saving at a far higher rate during the past three decades. There have been two significant institutional shifts that have contributed to this: Reforms to the regulations governing the deductibility of interest payments made by individuals and their families were implemented beginning in 1987 and continuing through 2009.

Second, most employees are now expected to participate in funded pension schemes and this trend began in the 1990s.

With time and compound interest, Danish pension funds have amassed a fortune that, in 2016, was equal to twice the country’s whole gross domestic product.

Therefore, the pension wealth is crucial for the entire Danish economy and for the life cycle of a typical Danish household. Because of the sizeable quantity of pension funds invested overseas, there is also a sizeable amount of foreign capital income.

Among OECD countries, only the Netherlands had household assets in 2015 that exceeded 600% of disposable income. In addition, average household gross debt was near 300% of disposable income, likewise the highest amount in the OECD.

The result is that Danish household balance sheets are much more robust than those of households in most other countries. The Danish central bank, Danmarks Nationalbank, attributes its success to the country’s advanced financial infrastructure.

Denmark World Trade

Due to its size and open economy, Denmark relies heavily on international trade. While imports accounted for 47% of GDP in 2017, exports accounted for 55% of economic output that year. About 60% of total exports and imports were comprised of merchandise trade, while the remaining 40% were comprised of service trade.

In 2017, the top export categories were machinery, chemicals, and allied products (such as pharmaceuticals and food). Danish merchant navy services for transporting cargo by sea made up the bulk of the country’s service exports.

Denmark’s major trading partners are mostly its neighbors. In 2017, the top five markets for Danish exports were Germany, Sweden, the United Kingdom, the United States, and Norway.

Germany, Sweden, the Netherlands, China, and the United Kingdom were the top five countries from which Denmark bought products and services in 2017.

While it ran a deficit on its external balance of payments current account for all but one year (1998) beginning in the early 1960s, Denmark has since run a surplus on that account every year except 1998.

Around 8% of GDP was represented by the current account surplus in 2017. This has resulted in Denmark shifting from a net debtor to a net creditor status. As of 1 July 2018, Denmark’s net foreign wealth or net international investment position was equal to 64.6% of GDP, making it the highest among EU countries.

As the value of domestic saving equals the value of the total domestic investment, the transition from a structural deficit to a structural surplus is attributable to shifts in these two components of the national account. Specifically, between 1980 and 2015, the national saving rate in financial assets in Denmark rose by 11 percentage points, representing a larger share of GDP.

The rising importance of large-scale compulsory pension schemes and several Danish fiscal policy reforms during the period that significantly decreased tax deductions of household interest expense, thus reducing the tax subsidy to private debt, were the two main reasons for this massive change in domestic saving behavior.


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