Denmark: Competitiveness warning
GDP growth has slowed, but the positive output gap remains large, with labour and capacity shortages evident. The inflow of workers from abroad has allowed employment to rise strongly. Nevertheless, wage growth is now gaining momentum, and loss of competitiveness is expected to weigh down on growth in the coming years.
Monetary conditions are no longer stimulating aggregate demand, but fiscal policy is set to do so in 2008, with rising public consumption and tax cuts that are not financed in the short run. This stimulus and additional municipal and regional overspending should be avoided or offset by savings elsewhere. Measures to boost labour supply should be pursued in ways that help long-run fiscal sustainability.
No. 264/265, December 2007-January 2008
• OECD Economic Outlook No. 82, December 2007
• Visit www.oecd.org/denmark
• All OECD Observer articles on Denmark