Economic analysis
Denmark

Denmark

Population 5.8 million
GDP per capita 60,897 US$
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Synthesis

major macro economic indicators

  2017 2018 2019 (e) 2020 (f)
GDP growth (%) 2.0 2.4 2.4 -5.9
Inflation (yearly average, %) 1.2 0.8 0.8 0.4
Budget balance (% GDP) 1.7 0.7 3.7 -7.2
Current account balance (% GDP) 7.8 7.0 7.8 5.9
Public debt (% GDP) 35.8 33.9 33.3 44.0

 

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

STRENGTHS

  • World’s second largest shipping operator (2018)
  • Almost energy self-sufficient (oil and gas in the North Sea and Greenland)
  • Niche industries with cyclically non-sensitive export goods
  • Well-managed public finances
  • Large current account surplus
  • Krone pegged to the euro

WEAKNESSES

  • Small open economy sensitive to external demand, especially from the UK and the looming Brexit
  • Government instability related to the fragmentation of parliament (threshold to enter the parliament is only 2% for a party, 4 extra seats for Faroe Islands and Greenland)
  • Very high household debt (265% of disposable income, 2019)
  • Public sector constitutes a significant part of the country’s employment (26% of employees at mid-2019)
  • High external debt (143% of GDP, 2019)
  • Strengthening independence movement in Greenland

Risk assessment

Economy more resilient compared to other European countries

The economic outlook is mainly shaped by the Covid-19 pandemic. The first case in Denmark was diagnosed on 27 February. The pandemic peaked in early April. From late May onwards, new daily infections were limited, but since mid-July, the numbers have increased again (status: 31.07.20). In total, 14,028 cases were reported (0.2% of the population) and 615 deaths. The health system is efficient and well resourced. The Danish government was one of the first governments in Europe to implement strong restrictions, thus avoiding a complete lockdown. From 13 March onwards, the government closed most activities and services that could not provide sufficient physical distancing, with schools and child-care among them. Most of the private sector could continue operating under distancing rules, including larger stores. Gatherings were limited to 10 people. In early April, the first restrictions were eased, with all shops opening again in mid-April. Denmark closed its borders in mid-March and opened up in late-June for EU/EFTA countries, as well as some single other countries.

 

Because of the lack of consumption, investment and external trade during the lockdown, Denmark has entered its strongest recession in decades (GDP in Q1 2020: -2.0%) with a provisional nadir in Q2 2020. Indeed, even with milder restrictions, many companies could not operate and the number of unemployed increased by 63,000 between February and May, resulting in an unemployment rate of 5.3% (the highest level since 2005). However, a more severe unemployment peak was prevented by a temporary wage compensation scheme, which helped 259,000 people during the lockdown period (set to end in late August) . The government supported the Danish economy with many different measures. The direct spending implications of the initiatives around business and job-oriented measures for 2020 amounted to around DKK 100 billion or 5% of GDP. Further measures such as government credit guarantee schemes, deferral of tax payment deadlines, etc. amounted to DKK 300 billion (15% of GDP). However, the central bank of Denmark had to increase its policy rate by 15 basis points to -0.6% to hold the Danish krone’s peg with the euro (its main target). The standing swap line with the ECB was activated, its size was doubled and an extraordinary lending facility was introduced and extended several times. All these measures should help speed up the recovery of the Danish economy, which is expected to begin in mid-2020 and continue into the year 2021.

 

Still a substantial current account surplus

The Danish trade sector is another reason behind the stronger resilience of the economy. Although exports decreased overall, especially since tourism came to a standstill for 3 months, the decline was modest in international comparison. This was thanks to a concentration of Danish exports on pharmaceuticals (16% of all exports) and agricultural/food products (13%), for which the demand remained relatively robust. However, the export of machinery - particularly wind turbines -, which is the other main pillar of Danish exports, is struggling with low demand from Germany and UK, the main export markets. In total, the current account surplus should shrink somewhat, but remain substantial. However, the general government budget should shift from a surplus to a high deficit in 2020. Nevertheless, the increased public debt should stay at a relatively low level and remain sustainable. Moreover, the high external debt, which is solely DKK-denominated, has decreased in recent years and most of it is related to the country’s high interconnectedness with the Nordic banking sector.

 

Minority government in a 15-party parliament

The Social Democratic Party (SD), led by Prime Minister Mette Frederiksen, won the general election in June 2019. The SD, with 48 out of 179 seats, formed a minority government (which is customary in Denmark) with the support of the Social Liberal Party (16 seats), the Socialists People’s Party (14 seats), the Red-Green Alliance (13 seats), and three single parties from Greenland and the Faroe Islands. Together, this “red block” has 94 seats in parliament. The opposition (the “blue block”) consists of the conservative-liberal party “Venstre” (43 seats), the right-wing Danish People’s Party (16 seats), the Conservative People’s Party (12 seats), the green party “Alternative” (5 seats) and the right-wing party “New Right” (4 seats). Due to the early introduction of measures to fight Covid-19 and the early easing of restrictions, Prime Minister Frederiksen and her government received a lot of domestic and international praise. In polls, the “red block” support’s share increased from around 52% before the pandemic to 57% in April. Frederiksen is expected to remain in office until the next regular election in 2023.

 

Last updated: August 2020

Payment

Denmark is in the process of becoming a cashless society. 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 10 days to settle the principal amount, plus any penalties for interest provided for in the initial agreement.

Once the 10 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 10 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 August 1, 2002 is either the Danish National Bank’s benchmark, or the lending rate (udlånsrente) in force on January 1 or July 1 of the year in question, plus an additional 8%.

 

Legal proceedings

Fast-track proceedings

Since January 1, 2008, overdue payments which do not exceed DKK 50,000 or €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, the efficiency of the Danish court system means that 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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