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Denmark Economy


Denmark was traditionally an agricultural country. Since the end of World War II, however, manufacturing gained rapidly in importance and now contributes more than does agriculture to national income. As of 2002, however, the service sector accounted for over 70% of GDP. Denmark has always been a prominent maritime nation, and since much Danish shipping operates entirely in foreign waters, it contributes considerably to the nation's economy. Denmark also has important investments abroad.

The main commodities raised are livestock (pigs, cattle, and poultry), root crops (beets, kohlrabi, and potatoes), and cereals (barley, oats, and wheat). There is a large fishing industry, and Denmark possesses a commercial shipping fleet of considerable size. The leading manufactures include food products (especially meat and dairy goods), chemicals, machinery, metal products (made almost entirely from imported raw materials, since Denmark has practically no mineral resources), electronic and transport equipment, beer, textiles, and paper and wood products. Tourism is also an important industry.

Denmark's main exports are agricultural and industrial machinery, teak and oak furniture, meat, fish, and metals and metal manufactures; the chief imports are machinery, metals, motor vehicles and fuels. The country's leading trade partners are Germany, Sweden, Great Britain and other European Union countries as well as the United States.

Danish living standards and purchasing power are among the highest in the world, but the domestic market is limited by the small population, and most important industries must seek foreign markets in order to expand. Natural resources are limited, and therefore Denmark must export in order to pay for the raw materials, feeds, fertilisers, and fuels that must be imported. As a result, and because international competition makes it difficult for Denmark to accumulate adequate foreign exchange reserves, the national economy has been greatly influenced by trends and developments abroad, over which it can exercise little or no control. Since the Danes jl ned the EC (now EU) on 1 January 1973, this problem has been alleviated somewhat. Integration into the Union's common agricultural policy has considerably improved Danish terms of trade by providing higher prices.

Productivity increased greatly in the postwar period. In agriculture the volume index for production rose steadily, while the agricultural labor force decreased. Similarly, improved techniques and mechanisation in industry enabled production to increase, despite a percentage decline in the number of persons employed.
From 1961 to 1971, the average annual rate of price increases in Denmark was 6.1%; in 1972, it was 6.6%; in 1973, 9.3%; and in 1974, partly because of rising oil costs, 15.2%. Throughout the remainder of the 1970s and through 1982, inflation remained in the 9-12% bracket. It then dropped from 6.9% in 1983 to 1.3% in 1993. By 1995, it had increased to 3.3% but in 1998 was down again to 1.8%. Economic activity slackened during the 1970s, with GDP growth at 2.3% a year, down from a rate of about 4.5% during 1960-70. Growth remained moderate during the 1980s averaging 2% a year. The GDP grew by 2.2% in 1990, but only at 1% in 1991, 1.2% in 1992, and 1.1% in 1993. In 1994, growth began to rebound, with GDP growing by 3.1%; in 1998 growth was 2.6%. Recessions in 1974-75 and 1980-81 spurred a substantial rise in unemployment. From a rate of 0.9% in 1973, unemployment reached 12.3% in 1993. By 1995, it had decreased to 10.2%, still quite high compared to the United States, but about the same as other EU countries. By 1998, however, it fell to an estimated 6.5%. Throughout the 1970s and through most of the next six years, Denmark's trade balance was in chronic deficit, but a surplus was registered in 1987 and continued through 1997. Denmark's vulnerability to the Asian and Russian financial crises in the late 1990s resulted in a balance of payments deficit.

Although Denmark easily met all of the criteria for membership in the European economic and monetary union (EMU), it opted to stay out of the euro zone. However, Danish leaders keep their options open and still have expressed interest in joining.

The Danish government in 2003 pledged to lower taxes, but the high cost of maintaining the welfare state made it difficult to implement those cuts. Government debt remains high, but the public budget was in surplus in 2002. Unemployment in the early 2000s was among the lowest of the EU countries. Important service sectors are communications and information technologies, management consulting, and tourism. However shipping remains the most important service sector in Denmark. In 2001, GDP growth was only 0.9%, down from 3% in 2000, largely due to the global economic slowdown and poor domestic demand. Exports were expected to increase in 2002, and coupled with an increase in public consumption versus public savings, GDP growth was expected to rise to 2% in 2003 and 2.5% in 2004. Wages were expected to rise in 2003, and if the global economy expanded, labour shortages were forecast to re-emerge.


Economy - overview : The Danish economy has in recent years undergone strong expansion fueled primarily by private consumption growth, but also supported by exports and investments. This thoroughly modern market economy features high-tech agriculture, up-to-date small-scale and corporate industry, extensive government welfare measures, comfortable living standards, a stable currency, and high dependence on foreign trade. Unemployment is low and capacity constraints are limiting growth potential. Denmark is a net exporter of food and energy and enjoys a comfortable balance of payments surplus. Government objectives include streamlining the bureaucracy and further privatisation of state assets. The government has been successful in meeting, and even exceeding, the economic convergence criteria for participating in the third phase (a common European currency) of the European Economic and Monetary Union (EMU), but Denmark has decided not to join 12 other EU members in the euro. Nonetheless, the Danish krone remains pegged to the euro. Economic growth gained momentum in 2004 and the upturn continued through 2006. The controversy over caricatures of the Prophet Muhammad printed in a Danish newspaper in September 2005 led to boycotts of some Danish exports to the Muslim world, especially exports of dairy products, but the boycotts did not have a significant impact on the overall Danish economy. Because of high GDP per capita, welfare benefits, a low Gini index, and political stability, the Danish living standards are among the highest in the world. A major long-term issue will be the sharp decline in the ratio of workers to retirees.

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