Good opportunities for many years of economic expansion

Facts: Main points from the Economic Survey, December 2017

• In 2016, the rate of GDP growth was the highest in 10 years. A continued high rate of growth is expected this year. GDP is expected to increase by 2.0 per cent this year, and the rate of growth is expected at 1.9 per cent and 1.7 per cent in 2018 and 2019.
• Growth in the Danish economy is broad-based. Private consumption, investments and exports are contributing to growth. The foundation for solid development in private consumption should in particular be seen in conjunction with employment growth in recent years, which has increased incomes.
• The pace of job creation has been continually high in 2017. Since spring 2013, employment has increased by more than 165,000 persons. Even though the pace is expected to slow down, employment is expected to rise by further 33,000 persons in 2018 and 23,000 in 2019. Employment is expected to reach a historically high level next year.
• The positive labour market development has reduced unemployment to a low level. Further reductions in unemployment will contribute to increase the labour market pressure. Already, an increasing number of companies report of labour shortages.
• In the coming years, a sustainable increase in employment will depend largely on an increase in the workforce. The workforce is already historically high. Reforms are estimated to expand the workforce by 31,000 persons in 2017-2019. In 2019, the retirement age and the early retirement age will be increased by half a year. This will in itself increase the supply of labour by almost 8,000 persons.
• Foreign labour is a major cyclical buffer, which has ensured a large increase in the supply of labour in recent years. However, the competition for foreign labour is increasing. In the euro area, labour shortages have risen to a historically high level.
• The improvement in the Danish economy means that GDP is now almost at the structural level. Thus, the Danish economy is moving into a boom. The main challenge for short-term economic policy will be to keep the expansion on track and avoid overheating.
• Not all booms end with an overheating. The risk of a hard landing increases if GDP is growing so fast that GDP will significantly exceed structural GDP. The risk increases if simultaneous imbalances occur. However, several factors indicate that it will be possible to maintain stable growth in the coming years.
• Since the financial crisis, several measures have been implemented to strengthen the financial sector and contribute to a more stable development in the housing market. Lending is more restrictive today than during the overheating in the 00s. At present, there are also no signs of widespread loan-financed consumption. In addition, households and companies have consolidated their finances over several years.
• With the Budget Law, the fiscal framework has been strengthened. In the coming years, it is planned to make progress towards structural balance. Planned fiscal policy thus contains a gradual tightening of fiscal policy, which helps to dampen the capacity pressure in the Danish economy.