OECD Economic Surveys : Denmark 1979.

75 Pages·5.066 MB·English

by  OECD

ORGANISATION FOR ECONOMIC CO-OPERATION ANO DEVELOPMENT
ORGANISATION DE COOPERATION ET DE OEVEIOPPEMENT ECONOMIQOES
BASIC STATISTICS OF DENMARK
THE LAND
Area (1000 sq. km) 43 Population, 1.1.1977 (1000):
Agricultural area Metropolitan area (incl. suburbs) 1284
(1 000 sq. km) 1977 29 Metropolitan area (excl. suburbs) 529
Other three main urban areas
(excl. suburbs) 568
THE PEOPLE
Population, 1.7.1978 (1000) 5 105 Civilian employment, 1977 (1000) 2414
Number of inhabitants per sq. km 119 of which:
Net natural increase, Agriculture 219
average 1973-1977 (1000) 17 Manufacturing (excl. building) 538
Net natural increase Building and construction 197
per 1000 inhabitants, 1977 2.4 Trade 351
Others 1 109
PRODUCTION
Gross Domestic Product in 1978 Gross fixed capital formation in 1978
(Kr. million) 308222 (Kr. million): 68828
GDP per head (US dollars) 10690 Per cent of GDP 22
Per head (US dollars) 2385
THE GOVERNMENT
Public consumption in 1978 Composition of Parliament
(per cent of GDP) 24 (no. of seats):
General government current revenue Social Democrats 65
in 1978 (per cent of GDP) 49 Social Liberals 6
Public gross fixed capital investment Liberals 21
in 1978 (per cent of GDP) Conservatives 15
Peoples' Socialists 7
Greenland and Far Islands 4
Communists 7
Christian Democrats 6
Progressive Party 26
Left Socialists 5
Center Democrats 10
Georgists 6
Trade and Industry's Party 1
179
Next general election:
Last general election: 15.2.1977 at the latest 14.2.1981
FOREIGN TRADE
Exports of goods and services Imports of goods and services
as per cent of GDP (1978) 28 as per cent of GDP (1978) 30
Main exports in 1978 (per cent Main imports in 1978 (per cent
of total merchandise exports): of total merchandise imports):
Agricultural products 22 Imports to direct use
Canned meat and canned milk 4 in the agricultural sector
Industrial goods 69 Imports to direct use
Other goods 5 in the building sector
Imports to direct use
in other private sectors 37
Fuels and electricity 16
Machinery and capital equipment 11
Transport equipment 5
Consumer goods 19
THE CURRENCY
Monetary unit: Krone Currency units per US dollar,
average of daily figures:
Year 1978 5.5110
June 1979 5.4221
Note An international comparison of certain basic statistics is given in an annex table.
OECD ECONOMIC SURVEYS
DENMARK
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JULY 1979
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
The Organisation for Economic Co-operation and Development
(OECD) was set up under a Convention signed in Paris on 14th
December 1960, which provides that theOECD shall promote policies
designed:
to achievethehighestsustainableeconomicgrowth andemploy¬
ment and a rising standard ofliving inMember countries, while
maintainingfinancialstability,andthustocontributetothedeve¬
lopment ofthe world economy;
tocontributetosoundeconomicexpansioninMemberaswellas
non-membercountries in theprocess ofeconomic development;
to contribute to the expansion ofworld 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 ofGermany, Greece,
Iceland, Ireland, Italy,Japan,Luxembourg, theNetherlands, NewZea¬
land,Norway,Portugal,Spain,Sweden,Switzerland,Turkey,theUnited
Kingdom and the United States.
TheSocialistFederalRepublicofYugoslavia is associatedin certain
work oftheOECD,particularlythatoftheEconomic andDevelopment
Review Committee.
The annual review of Denmark
by the OECD Economic and Development Review Committee
took place on 28th June 1979.
©OECD, 1979
Queriesconcerningpermissionsortranslationrightsshouldbeaddressed
to:
Director ofInformation, OECD
2, rue André-Pascal, 75775 PARIS CEDEX 16, France.
CONTENTS
Introduction 5
I Recent trends and policies 5
Demand, output and labour market developments 6
Prices and incomes 10
The balance of payments 15
The impact of economic policies 17
Prices and incomes policy 17
Fiscal policy 18
Monetary policy 20
II Short-term prospects 25
Policy assumptions and the external environment 25
Outlook for 1979 and 1980 28
III The balance-of-payments adjustment process and related issues 32
Balance-of-payments developments in relation to overall economic
performance 32
Main determinants of changes in the external balance 35
The role of stabilisation policies 39
The scope for restoring external balance in the medium term 42
IV Policy considerations 47
Annexes
I Chronology of major economic policy events 49
II Quantitative estimates of foreign trade determinants 53
Statistical annex 60
TABLES
Text
1 Demand and output 6
2 Prices and wages 12
3 Private sector income 14
4 Recent balance-of-payments developments 16
5 Public sector revenue and expenditure 19
6 Developments in monetary aggregates 21
7 Prospects for Denmark's export markets 27
OECD Economic Surveys
8 Supply and use of resources 29
9 The balance of payments 31
10 Macro-economic performance indicators 34
1 1 The structure of the balance of payments 36
12 Impact of a deceleration in wage increases 45
13 Impact of a 10 per cent devaluation 46
Annex II
1 Foreign trade performance 54
2 Estimated foreign trade equations 56
Statistical annex
A Supply and use of resources (current prices) 60
B Supply and use of resources (1970 prices) 61
C General government income and expenditure 62
D Balance of payments, OECD basis 63
E Labour market and production 64
F Foreign trade, total and by area 66
G Prices and wages 66
H Money and credit 67
DIAGRAMS
1 Indicators of private consumption 7
2 Labour market indicators 11
3 Trends in prices and wages 13
4 Indicators of monetary policy 23
5 The foreign debt 33
6 Unemployment and the current external deficit 34
7 Indicators of Denmark's competitive position 37
8 Labour productivity in manufacturing industry 38
9 Real national income, wages and productivity 41
10 Saving and investment 43
INTRODUCTION
Since 1976, the main policy objective has been a gradual restoration of
external equilibrium. The sluggishness of the international recovery experienced
in recent years has meant that an export-led recovery could only come from
an improvement in international competitiveness. To this end, incomes policy
arrangements were intended to constitute a key element. At the same time, a
policy of positive structural adjustment was pursued, securing a relatively fast
increase in productivity. In order to keep domestic demand within limits compa¬
tible with an improvement of the current balance, fiscal policy has been succes¬
sively adjusted in a restrictive direction. And monetary policy has been constantly
geared to ensure the financing of the external deficit, entailing high domestic
interest rates. The impact on labour market conditions of this policy mix has
been cushioned to some extent by labour market measures.
In the event, international competitiveness has not been significantly improved
and the progress made in reducing the external imbalance has been slow; in
1978 the current account deficit still amounted to $1.4 billion or around 2\ per
cent of GDP. In spite of a significant deceleration in consumer price increases
the underlying rate of inflation has remained rather high with wage advances
hardly shewing any sign of deceleration since the beginning of 1976. Finally,
the growth of activity has been more sluggish than in most other Member
countries, real GDP expanding by only 2 per cent in 1977 and 1 per cent in
1978. After a moderate strengthening of activity in the first half of 1979, and
on the basis of the energy package announced in June, growth is again expected
to weaken over the next eighteen months. Nevertheless, in view of the recent
biennial wage agreement, international competitiveness may deteriorate slightly,
and since significant terms-of-trade losses are likely to take place in 1979, the
current balance deficit may be expected to widen again this year and no improve¬
ment is likely in 1980.
Recent trends and the impact of economic policies are examined in Part I
of the present Survey. The following section presents the outlook for 1979
and 1980 while Part III analyses the balance-of-payments adjustment problem
in a medium-term perspective. Part IV concludes the Survey with a discussion
of the main economic policy issues. Annex I contains a Chronology of major
economic policy events and Annex II presents some quantitative estimates of
export and import determinants.
I RECENT TRENDS AND POLICIES
The short-lived recovery of demand and activity experienced in 1976 to a
large extent the result of domestic reflationary action was followed by sluggish
growth in the two and a half years to mid-1979. As a result of tight demand
management, mainly dictated by balance-of-payments considerations, private
OECD Economic Surveys
demand stagnated; and although the growth of public expenditure on goods and
services accelerated, total domestic demand remained virtually stable. Net exports
of goods and services constituted the main source of strength during the period.
This was achieved by a steady, though modest, increase in exports in line with
the expansion of foreign markets while the growth of imports was rather depressed.
However, in spite of favourable terms-of-trade developments, the balance-of-
payments deficit improved only slightly, due to the strong increase in net interest
payments in the wake of rising external indebtedness. Although the rise in
consumer price has shown a significant deceleration, falling to an annual rate
of around 5 per cent in the 6 months to April 1979, wages have continued to
advance at a steady 10 per cent annual rate over the last three years. Unemploy¬
ment, edging up until the beginning of 1978, declined somewhat early in 1979,
helped by a number of labour market measures, including an early retirement
scheme. However, private sector employment has continued to show a stagnating
or slightly declining trend.
Demand, output and labour market developments
Following very modest growth in 1977 (0.4 per cent) real private consump¬
tion fell by 0.8 per cent in 1978, reflecting a small increase in real disposable
income (around \ per cent) and some rise in the household savings ratio1. The
decline was largely concentrated in demand for passenger cars and other durables
(51 per cent and 8 per cent down respectively in real terms) whereas purchases
of non-durables rose by 2-3 per cent. Short-term fluctuations in spending have
Table 1 Demand and output
1977 1974 1975 1976 1977 1978
Kr.
bill. Per cent change at constant 1970prices
Private consumption 157.64 -1.2 5.3 7.2 0.4 -0.8
Public consumption 66.57 3.9 3.5 2.4 3.1 3.8
Gross fixed investment' 63.35 -10.6 -10.7 17.3 -3.0 0.5
Public 13.06 -10.9 5.8 -0.9 -5.1 3.1
Dwellings 14.54 -26.4 -16.5 27.3 -10.5 -0.6
Other private 35.75 -3.2 -14.2 21.4 0.5
Final domestic demand 287.56 -2.6 1.2 8.3 0.2 0.5
Stock formation2 1.41 (-0.7) (-2.3) (2.2) (-0.1) (-0.1)
Total domestic demand 288.97 -3.3 -1.2 10.6 0.1 0.4
Exports of goods and services 80.15 4.1 -2.9 4.5 4.7 3.8
Imports of goods and services 90.81 -3.9 -5.3 16.5 -1.2 1.6
Foreign balance2 -10.66 (2.5) (0.7) (-3.6) (1-8) (0.7)
Gross domestic product 278.31 -0.9 -0.4 7.0 1.9 1.0
GDP deflator 12.5 11.6 7.9 9.2 9.6
_1 The distribution of total investment on public investment, etc., is estimated by the Secretariat on the
basis of a similar distribution made by the Ministry of Economics (0konomlsk Oversigt, February 1979,
Annex Tables 13 and 14).
2 Changes in per cent of previous year's GDP.
Note Due to changes in national account definitions and revisions of past data, this table is not
directly comparablewith similarstatisticspublished in 0konomisk Oversigt, February 1979.
Sources: Nyt Era Danmarks Statistik; OECD.
1 The apparent rise in the savings ratio may have been related to a small shift in the
income distribution in favour of self-employed (farmers) although the increase in real
interest rates experienced in recent yeais may also have increased wage earners' savings
ratio.
Denmark
been particularly marked over the last two years, influenced by frequent adjust¬
ments of indirect taxes. Thus, the sharp rise in the volume of retail sales in the
third quarter of 1977 was mainly induced by anticipatory purchases prior to the
tightening of fiscal policy in the autumn; the subsequent reaction resulted in a
marked fall in the fourth quarter. The increase in the value added tax by
2\ percentage points (to 20| per cent) in October 1978 affected developments
within the second half in much the same way as previous VAT increases, though
the effect was somewhat less pronounced. However, retail sales showed a slight
increase in the course of 1978, in line with the improvement in real hourly
earnings recorded since the first quarter of 19782. According to preliminary
retail sales and import statistics, the rise in private consumption would seem to
have levelled off in in the early months of 1979.
After a decline of more than 10 per cent in volume in 1977, residential
construction was virtually stagnant in 1978, but with a marked change in the
Diagram 1 Indicators ofprivate consumption
(Indices, 1970= 100)
8180 _. 125;
124.
123 '
122
121
120
119
118
117
ne
115
114
113
112
111
110
109
108
107
IK
105
1979
Sources: OECD, Main Economic Indicators.
2 Real hourly earnings in manufacturing rose by 21 per cent between the fourth quarter
of 1977 and the fourth quarter of 1978. In the same period, volume retail sales rose by
3 per cent (see Diagrams 1 and 3).
OECD Economic Surveys
composition of demand and supply of new dwellings. Following an easing of the
subsidised sector's financial position in 19773 and an increase in the demand
for subsidised dwellings, investment activity picked up, and in 1978 as a whole
the number of subsidised building starts increased by more than 20 per cent
from its depressed 1977 level. On the other hand, tight individual ceilings for
borrowing, higher building costs and rising real interest rates combined with
stagnating real disposable incomes put a brake on non-subsidised building activity.
The number of one-family houses completed (accounting for more than 80 per
cent of the total number of completions in 1977) declined by 1\ per cent last
year while starts were down by \\ per cent. The total number of dwellings
completed fell to 34 000 units against 36 300 units in 1977\ However, quality-
improving investments have continued at a high level. The sluggish trend of
housing investment seems to have continued into 1979. Although developments
in the first quarter were influenced by bad weather1"', the number of building
permits issued was only 2 per cent below that recorded in the same period
of 1978.
The trend of non-residential private fixed investment has also been very
weak over the last two years, albeit with significant differences between sectors.
According to indicators on imports and domestic volumes sales of capital goods,
private non-agricultural investment in machinery and equipment increased slightly
between 1977 and 1978, the upward trend strengthening in the course of the
year0. The strength of equipment outlays late in the year can to some extent be
related to the expiration of a special depreciation allowance, which in the event
was prolonged7. But as business construction outlays decreased, total non-agri¬
cultural private capital formation fell, though only marginally. On the other
hand, as a result of the marked increase in farmers' incomes following good
harvests in 1977 and 1978 and high prices, investment in agriculture rose by
15 per cent, mainly concentrated in new buildings. However, given the continous
fall in investment in ships and aircraft, total non-residential private gross fixed
investment stagnated for the second consecutive year. This development must
be viewed against the background of low rates of capacity utilisation. According
to tentative estimates by the Economic Council, capacity utilisation (total
economy) dropped from 93 per cent in 1973 to 83 per cent in 1975. The fast
increase in output in 1976 brought the utilisation rate up to 86 per cent, at which
level it seems to have remained during the last two years. Moreover, due to
persistent pressure on wage costs, investment was probably more geared to ratio¬
nalisation than to capacity-widening, a feature corroborated by both the rising
share of equipment in total capital outlays and reduced manpower requirements
in the private sector which has permitted business to remain competitive through
a significant improvement of labour productivity. The extent to which high
interest rates have impeded capital formation (apart from residential construction)
remains uncertain. Most entrepreneurs (including farmers) have direct borrowing
3 In the spring of 1977 it was decided to reduce the self-financing ratio of the social
building societies from 8 to 7 per cent at the same time as the societies were obliged to
increase capital transfers from the existing stock of dwellings to the scheme.
4 In the decade to 1977, the average annual number of units completed amounted to
46000, with a peak of 55500 in 1973.
5 During the first quarter of this year, the total number of starts and completions
was close to 20 per cent below the year earlier level.
6 Quantity indices for capital goods industries' sales (excluding shipbuilding and repair)
rose by about 3' per cent in 1978, with the fourth quarter posting an increase of 11 per cent
above its level a year earlier.
7 Introduced in 1975, at a rate of 20 per cent, the special depreciation allowance on
machinery and equipment (except motor vehicles) has been extended several times at a rate
of 10 per cent, most recently until the end of 1980.