Economic Studies
Denmark

Denmark

Population 5.7 million
GDP per capita 53,745 US$
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Synthesis

major macro economic indicators

  2015 2016 2017(f) 2018(f)
GDP growth (%) 1.6 1.7 2.2 2.0
Inflation (yearly average, %) 0.4 0.3 1.0 1.4
Budget balance (% GDP) -1.7 -0.6 -1.4 -0.8
Current account balance (% GDP) 9.1 7.8 8.3 8.0
Public debt (% GDP) 39.6 37.7 37.8 36.9

 

(f): forecast

STRENGTHS

  • World’s fifth largest shipping operator
  • Energy self-sufficiency (oil in the North Sea and Greenland) and net energy exporter
  • Niche industries (renewable energy/biotechnology)
  • Well managed public finances
  • Large current account surplus

WEAKNESSES

  • Small open economy sensitive to external demand
  • Government instability linked to the fragmentation of Parliament
  • Very high household debt levels (240% of disposable income)
  • Public sector strongly represented in job market (30% of employees)
  • Tensions over housing in certain cities

Risk assessment

Internal demand boosts activity

In 2018, growth will remain vigorous, buoyed by private consumption and investment. Private consumption will be sustained by historically low interest rates (key rate: 0%; interest on bank deposits with the central bank: -0.65% since February 2015), higher wages, as well as low unemployment (4.4% in September 2017). Moderate inflation will help significantly increase household disposable income, also sustained by lower income taxes in 2018 as agreed by the government. Moreover, households will benefit from the wealth effect associated with property prices, as well as more flexible credit conditions thanks to deleveraging since 2014, although household debt is still the highest in the OECD (240% of disposable income). Higher capacity utilisation, as well as the shortage of labour, will encourage private investment in the industrial sectors (pharmaceuticals, capital goods). The transport sector (50% of services) will benefit from the recovery in world trade, on which it is heavily reliant. Residential construction will be especially dynamic due to the recovery in property prices and the improved financial position of households. However, the energy sector (oil and gas) will represent a smaller and smaller share of the economy and will still be affected by weak commodity prices. Improved economic conditions in the main partner countries are expected to sustain exports, while the country’s competitiveness remains satisfactory.

Low inflation means the central bank can maintain its very accommodative monetary policy, in line with that of the ECB and maintain the Danish krone’s peg to the euro. This policy has enabled export competitiveness to be maintained while supporting domestic demand.

 

Large current account surplus and healthy public finances

The government is expected to maintain a cautious fiscal policy, in order to prevent the economy from overheating, given the low unemployment rate. The slight increase in spending is expected to be concentrated in two areas: security, by means of higher allocations to defence, and the recruitment of more tax administration staff following a scandal in 2017 over poor tax collection. New tax measures were also announced in the Strategic Plan (2017-2025). These comprise, specifically, cuts to income tax as well as twenty-two initiatives designed to foster long-term growth. All these measures will be financed by cuts in funding for the public rail company and by reducing social transfers abroad. As a result, the deficit and the public debt will remain broadly below the threshold set by the European Stability and Growth Pact (3% and 60% of GDP respectively).

There will still be a substantial current account surplus in 2018. Lively export momentum will help maintain a trade balance surplus (5.3% of GDP), even if imports will also rise, stimulated by consumption and investment. Exports of agricultural products (pork, milk) will be the least dynamic, especially those to Asian countries and Germany. Machinery and transport equipment will also be among the top exports, as will chemical products (biotechnology). Nevertheless, Brexit could have a negative impact on export items due to lower demand from the United Kingdom (4th biggest export market). External debt is still considerable (130% of GDP), even though it has fallen strongly since 2013. Two thirds of this can be attributed to the Danish financial sector because of the interconnection between the Nordic banking sectors.

 

A weak government coalition, dependent on the support of the extreme right

Prime Minister Lars Lokke Rasmussen has led a centre-right coalition government since 2016, made up of his party (Liberal Party), the Liberal Alliance (LA) and the Conservative People’s Party (KF). This coalition is in the minority as it brings together only 53 MPs out of 179. However, it benefits from the support of the extreme right, the Danish People’s Party (DF), which has 37 MPs but does not want to participate in government. Significant disagreements between the different coalition parties, combined with the demands of the extreme right-wing party (DF) leave the prime minister little leeway for reforming the country. Effectively, the implementation of the government’s Strategic Plan (2017-2025) could be strongly compromised by these disagreements. The persistence of these splits could lead to early elections in 2018. Greenland’s desire for independence (the Arctic is a region potentially rich in natural resources) will also be a major challenge, which Denmark will have to resolve in the medium term.

 

Last update : January 2018

Payment

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

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

 

Legal proceedings

Fast-track proceedings

Since 1st January 2008, overdue payments which do not exceed 50,000 Danish kroner (DKK) or EUR 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, as Danish courts are an efficient solution, 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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