OECD Economic Surveys : Denmark 1971.

63 Pages·3.954 MB·English

by  OECD

OECD
ECONOMIC SURVEYS
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DENMARK
0 ;i 3 ,\ 'I i 3 .\ m D 'i 0 = C D 0 ? = il .( i i 0 -i = "i D " ilhfiil?^ 'I : -M M D "') 0 M I 't U I 3
JULY 1971
BASIC STATISTICS OF DENMARK
THE LAND
Area(1000sq.km) 43 Population, Sep. 1965 (1000) :
Agriculturalarea(1000sq.km) 30 Metropolitan Area 1 378
Provincial towns with suburbs 1 537
THE PEOPLE
Population,Oct.1970(1000) 4393 Labour force, total 1970 (1000) 2390
Numberofinhabitantspersq.km 115 ofwhich:
Net natural increase, average 1965- Agriculture 266
1967(1000) Manufacturing 700
Net natural increase per 1000 inhab. Buildingandconstr. 207
(average1965-1967) 7.5 Trade 374
Others 843
PRODUCTION
Gross National Product in 1970 (Kr. Gross fixed capital formation in 1970
million) 127200 (Kr.million) 36300
GNPperhead(USdollars) 3438 PercentofGNP 29
Perhead(USdollars) 981
THE GOVERNMENT
Public consumption in 1970 (per cent of Composition of Parliament (No. of
GNP) 17 seats):
General government current revenue in SocialDemocrats 62
1970(percentofGNP) 38 SocialLiberals 27
Public gross fixed capital investment (per Liberals 34
centofGNP) 8 Conservatives 37
Peoples'Socialists 11
LeftWingSocialists 2
SocialistWorkingGroup 1
Communists 1
GreenlandandFaroeIslands 4
Total 179
Lastgeneralelection: 1968 Nextgeneralelection: 1971
FOREIGN TRADE
Exportsofgoods and services as percent Importsofgoods and services aspercent
ofGNP(1970) 27 ofGNP(1970) 29
Main exports in 1970 (per cent of total Main imports in 1970 (per cent of total
merchandiseexports): merchandiseimports):
Agriculturalproducts 22 Rawmaterials
Cannedmeatandcannedmilk 7 Machineryandequipment
Industrialgoods 65 Fuels
Othergoods 6 Basemetals
Transportequipment
Textiles
THE CURRENCY
Monetaryunit:Krone Currency unit per SUS (fr. 21.11,-67): 7.50
Note Aninternationalcomparisonofcertainbasiceconomicanddemographicstatisticsisgiveninan
annextable.
OECD ECONOMIC SURVEYS
DENMARK
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
The Organisationfor Economic Co-operation andDevel¬
opment (OECD) was set up under a Convention signed
in Paris on 14th December, 1960, which provides that the
OECD shallpromote policies designed :
to achieve the highest sustainable economic growth
and employment and a rising standard of living in
Member countries, while maintaining financial sta¬
bility, and thus to contribute to the development of
the world economy ;
to contribute tosoundeconomic expansion in Member
as well as non-member countries in the process of
economic development ;
to contribute to the expansion of world trade on a
multilateral, non-discriminatory basis in accordance
with international obligations.
The Members ofOECD are Australia, Austria,Belgium,
Canada, Denmark, Finland, France, the Federal Republic of
Germany, Greece, Iceland, Ireland, Italy,Japan,Luxembourg,
the Netherlands, Norway, Portugal, Spain, Sweden, Switzer¬
land, Turkey, the United Kingdom and the United States.
The Socialist Federal Republic of Yugoslavia is
associated in certain work of the OECD, particularly that
of the Economic and Development Review Committee.
The annual review ofDenmark by the OECD
Economic and Development Review Committee took place
on the 15th June 1971. The present Survey
has been updated subsequently.
CONTENTS
Introduction 5
I Main Issues 5
The Problem of External Balance 5
The Problem of Domestic Inflation 7
D Recent Trends 9
Demand and Supply 9
Balance of Payments 11
Export Performance 12
Imports 15
Wages and Prices 16
III Economic Policy 18
Demand Management in 1970 18
The Policy Stance in 1971 21
Price-Incomes Policy 24
IV Prospects 25
Short-Term Prospects 25
Exports 26
Imports 27
Current Balance of Payments 27
Balance of Supply and Demand 27
Cost and Prices 28
Some Longer-Term Problems 31
The Growth of Public Expenditure 31
The Long-Run Export Performance 34
V Summary and Conclusions 35
TABLES
Text:
1 Supply and Use of Resources 10
2 Sources of Growth 10
3 Balance of Payments 11
4 Export Performance 13
5 Trends in Merchandise Exports 15
6 Trends in Merchandise Imports 16
7 Comparative Developments in Wages 17
8 Trends in Prices 17
9 Money and Liquidity Supply 20
10 Public Finance 21
11 Public Expenditure 22
12 Summary of Prospects for 1971 28
13 Supply and Use of Resources 1970 and 1985 33
Statistical Annex:
A Supply and Use of Resources, Current Prices 40
B Supply and Use of Resources, 1963 Prices 41
C Gross Domestic Product by Industry of Origin, Current Prices 42
D Gross Domestic Product by Industry of Origin, 1963 Prices 43
E Gross Domestic Fixed Asset Formation, 1963 Prices 44
F Consumers' Expenditure on Goods and Services 45
G Central Government Income and Expenditure 46
H Balance of Payments and Foreign Assets 47
I Labour Market and Production 48
J Foreign Trade, Total and by Area 50
K Imports: Value, Volume, Prices and by Commodity Group 51
L Exports: Value, Volume, Prices and by Commodity Group 52
M Prices and Wages 53
N Money and Credit 54
DIAGRAMS
1 Business Cycle Indicators 6
2 Trends in Wages and Prices 8
3 Trends in Exports and Imports 14
4 Basic Policy Indicators 19
5 Short-Term Demand Indicators 29
6 Labour Market and Employment 30
7 Export Performance in the 1960's 35
INTRODUCTION
After a rather turbulent five-year period the Danish economy may
now be approaching calmer waters. The quinquennial 1966 to 1970 has
seen the realisation of a series of important reforms: the introduction of
TVA in 1967, the change to a PAYE-system of income taxation on 1st
January 1970, the major change in the municipal administration on 1st
April 1970, and the reform of the capital market and the whole monetary
policy setting. It is regrettable, but perhaps not surprising, that these
reforms have caused a certain degree of short-run instability in the economy.
In spite of restrictive measures domestic demand rose sharply in 1969,
entailing strong pressures on domestic resources and the current external
account. With the period of major reforms coming to an end, at least for
the time being, and with the improvements in policy-making arrangements
which have been effected in recent years, economic policy should be in a
good position to deal more forcefully with the two main policy problems
facing it domestic inflation and large current external deficit. As a result
ôf a marked tightening of demand management policy, the strains on
resources are now easing and the balance of payments, although remaining
in deficit on current account, should improve. Easier demand conditions
should help also to restore better cost/price stability but the price per¬
formancemayneverthelessremainunsatisfactory in 1971. Itwill bedesirable
to continue to attach first priority to the achievement of a stronger foreign
balance and a better cost/price performance.
I MAIN ISSUES
The Problem of External Balance
In the 1950's the relatively restrictive demand management policy
required to maintain the currentexternal account in approximate equilibrium
entailed slow growth of activity and high unemployment. The slow advance
in agricultural exports, which accounted for more than half of total merchan¬
dise exports, was the main factor underlying the weak balance of payments
position. In 1958, a substantial improvementin the terms of trade facilitated
a majorchange in policy orientation. A policy conducive to rapid expansion
of industrial output and exports was adopted, relying to some extent on
capital imports to finance the higher rate of investment required. This
policy was successful: investment in manufacturing in the 1960's was three
times as high as in the 1950's, industrial production rose rapidly, unemploy¬
ment was much reduced, and by 1970 the share of agricultural products in
merchandise exports had fallen to less than a quarter. The share of Danish
OECD Economic Surveys
Diagram 1 Business Cycle Indicators
UNEMPLOYMENT RATE
Avéra eforthe iod
0 l~ _i(cid:9)1_
EXTERNAL BALANCE ON GOODS ANDSERVICES
2 PercentofGDP,volumeterms
0
-2
-4
4 i-
BALANCE ON CURRENT EXTERNALACCOUNT
PercentofGDP,currentprices
-2
-4 IM
1959 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970
1 Percentage deviation from trend.
Sources: Danish National Accounts and the OECD Secretariat.
Denmark
manufactures in export markets rose over most of the decade, notably in
EFTA countries, helped by the dismantling of customs barriers.
Given the structural change that had taken place, and the improvement
in competitiveness which resulted from the devaluation of the Krone in
November 19671, therewere reasons toexpectan improvement of the balance
of payments. In the event, however, despite the exceptionally strong
growth of world trade, the current external deficit rose to the equivalent
of 3.1 per cent of GDP in 1969 and further to 3.6 per cent in 1970. This
development was largely due to an exceptionally fast rise in domestic
expenditure 10.2 per cent (in volume) between 1968 and 1969 entailing
a deterioration of the external balance on goods and services in real terms
of as much as 2.8 per cent of GDP2. Under the influence of strong fiscal
and monetary brakes as from the beginning of 1970 the external deficit
has subsequently been reduced to a more manageable size but further
strengthening of the balance of payments will be required in the years ahead
if the authorities' aim of restoring an equilibrium or surplus current account
position is to be achieved.
The Problem of Domestic Inflation
The much higher degree of demand pressure in the 1960's compared
to the previous decade was accompanied by considerably faster price
increases. The GDP deflator rose on average by 5.7 per cent per year
between 1960 and 1970 as against 3.3 per cent between 1950 and 1960.
Part of the acceleration may be ascribed to a significant rise in indirect
taxes in accordance with the authorities' objective of bringing about a shift
in thetaxincidencefrom direct to indirect taxation. However, even allowing
for this, the rate of inflation was high, compared to trends in other OECD
countries. Unit labour costs in manufacturing, on the other hand, moved
in line with the average of the major industrialised European OECD
countries, suggesting that cost push in manufacturing was not a more impor¬
tant source of inflation than elsewhere.
A committee report on the "Causes of Inflation" published in 1966'
attempted to identify the causes behing the particularly rapid price increase
in Denmark in the 1960's. The reportpointed in particular to the permanent
process of compensatory income adjustments resulting from the pressures
from the various interest groups. This process had been strengthened by
the system (introduced in 1961) of agricultural prices on the home market
being determined independently of export prices and adjusted in accordance
with changes in costs. Moreover the policies pursued as regards wages in
the now very important public sector had contributed to the upward drift of
salaries and on occasions had sparked off a wave of wage increases in the
private sector. Finally it was emphasized that rent control and direct and
indirect subsidies to housing had contributed to strong activity in the con-
1 The parity against dollar was reduced by 7.9 per cent.
2 Dueto animprovement intermsoftradethiswasnot fullyreflected inthe balance
of payments.
3 Inflationens Arsager (in Danish), Bet. No. 421, Copenhagen May 1966.
Diagram 2 Trends inWages and Prices
300
A. HOURLY EARNINGS
. aS
250
Femaleworker.^^ *
200
Unskilled male worker.
Skilledmaleworker
.^->-
150
100k
B. UN|T LABOUR COSTS'
140
indollarterms
Denmark /
130
(cid:9)N.
120 OtherIndustrialised s
OECDEurope2.»« ,^f
1* v*"** OtherNordicCountries3
110 ^
100L
200
C. CONSUMER PRICES
Denmark
150
OECD-Europe4
100b
1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970
1 For the two groups ofcountries, thefigures have been weighted together according
to their weights in the OECD index ofindustrial production. Unit labour cost is denned
as the total cost of wages, salaries and associated employer outlays per unit of output in
the manufacturing sector. For the purpose of international comparison national data
have been converted into dollars at current exchange rate. Due to considerable problems
regarding the comparability and precision ofindicators, the estimates should beconsidered
as a crude measure of trends.
2 Austria, Belgium, France, Germany, Italy, the Netherlands and the United King¬
dom.
3 Finland, Norway and Sweden.
4 The figures have been weighted together with their share of private consumption
in total OECD Europe consumption, converted into dollars at current exchange rates.
Sources: Statistiske Efterretninger, Finanstidende and the OECD Secretariat.