2021 OECD ECONOMIC SURVEY OF DENMARK Delivering a sustainable recovery 16 December, 2021
http://www.oecd.org/economy/denmark-economic-snapshot/ @OECD
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Key messages • Denmark weathered the COVID-19 crisis relatively well and has returned to solid growth. • The crisis was worse for the young, the foreign-born and those with less education. Reforms should expand opportunities for these groups and further reduce gender gaps. • Denmark has made the commendable commitment to deep greenhouse gas emission cuts. Rapid deployment of renewables has seen emissions decline by 36% between 1990 and 2019 without disrupting economic or jobs growth. • However, managing the socioeconomic consequences of further emission cuts will be challenging, heightening the importance of good policy and a just transition. 2
The economic recovery is well established
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The economy has recovered quickly
Source: OECD Economic Outlook 110 database.
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Consumption has rebounded
Source: Danske Bank; OECD, Economic Outlook database; and Statistics Denmark. 5
The increase in unemployment was moderate and has since been reversed
Note: As of 8 December 2021, 2021 Q3 data are estimates for Austria, France, Greece, Slovak Republic, Slovenia and Switzerland. Source: OECD Economic Outlook database.
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A milder downturn meant less fiscal support was needed
Source: OECD Economic Outlook database. 7
Interest rates are lower than warranted by economic conditions
Note: The interest rate based on Danish economic conditions is calculated using a Taylor rule, based on GDP growth, potential GDP growth and inflation. Source: Calculated based on OECD Economic Outlook database.
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House price growth picked up in the crisis
Source: OECD Economic Outlook database. 9
Household gross debt is very high, but backed by substantial assets
Source: OECD, Economic Outlook and National Accounts databases. 10
The top income tax rate is high
Source: OECD, Taxing Wages database.
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Recommendations to support the recovery • Continue to withdraw exceptional COVID-related measures in 2022, but be prepared to resume targeted support in case of a further unexpected deterioration.
• Provide greater flexibility in the fiscal rule over the medium term by allowing a larger deficit. • Be ready to tighten macroprudential regulation if risks continue to build. • Reduce top income tax rates to reduce disincentives to entrepreneurship and higher earnings, while increasing housing and environmental taxes.
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Towards net zero emissions
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Denmark has succeeded in cutting emissions
Note: Production-based emissions account for emissions directly generated in domestic production. Demandbased emissions include emissions embodied in imports and deduct those embodied in exports. Source: OECD, Green Growth Indicators database.
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Carbon emission cuts have not prevented economic growth
Source: OECD, Economic Outlook database; Our World in Data.
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Meeting climate targets will require further progress across all industries
Source: UNFCCC, GHG Data Interface; Government of Denmark.
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Public support for climate policies is high, though taxes are less popular
Source: Boone L. et al. (forthcoming), Understanding Public Acceptability of Climate Change Mitigation Policies across OECD and non-OECD Countries, OECD publishing, Paris.
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Pricing of emissions varies considerably
Source: OECD (work in progress), Taxing Energy Use 2022.
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Renewable generation has grown fast, but relies increasingly on biomass
Note: Renewable sources include biomass, hydroelectricity, wind and solar. Source: IEA, World Energy Balances and World Energy Statistics databases.
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Renewables are now the cheapest source of electricity after including environmental costs
Source: Estimated using Danish Energy Agency (2020), Levelized Cost of Energy Calculator; IEA and NEA (2020), Projected Costs of Generating Electricity; and OECD, Effective Carbon Rates database.
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Increasing car use has pushed up transport emissions despite greener vehicles
Source: EEA; Statistics Denmark; ITF, Performance Indicators database; and OECD estimation.
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Emissions intensity of agricultural products is often lower than in other countries Kg CO2 per kg product, 2017
Source: Food and Agriculture Organization, Corporate Statistical Database, Agri-Environmental Indicators, Emissions Intensities data.
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Recommendations for cutting emissions in an effective, inclusive and comprehensive way • Continue with a well-balanced policy mix of pricing, regulatory measures, investment and structural reforms. • Clarify and communicate the climate strategy. • Make emission pricing outside the EU Emissions Trading System more uniform by implementing a minimum price. • Continue to undertake regulatory reform to facilitate market entry, competition and skill formation. • Offset negative distributional consequences of climate policy on vulnerable households. • Provide temporary time-limited rebates of emission pricing based on production levels in emissions-intensive tradeexposed industries. 23
Recommendations for climate policy in energy, transport and agriculture • Better align incentives for woody biomass use with its climate and environmental impact while easing regulation of district heating to allow private investment and innovation.
• Continue to encourage the shift towards low and zero-carbon vehicles, including with incentives to invest in recharging stations particularly in remote areas. • Prioritise action at the EU level and support further reform of the Common Agricultural Policy to include ambitious climate measures.
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Reforms to increase productivity growth and labour market inclusion
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Digital tools support productivity
Note: Firms with 10 or more employees, excluding the financial sector. ERP stands for enterprise resource planning. Source: OECD Going Digital Toolkit.
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Women suffer a motherhood penalty and are under-represented in management
Source: H. Kleven, C. Landais and J. E. Søgaard (2019), "Children and Gender Inequality: Evidence from Denmark", American Economic Journal: Applied Economics, vol. 11(4), pages 181-209, Figure 1; OECD, Gender - Employment Statistics database.
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Danish immigrants lag on skills and jobs
Note: In panel A, a positive score indicates better performance for non-immigrants than (first- and secondgeneration) immigrants. Source: OECD (2019), PISA 2018 Results (Vol II), Table II.3; OECD, Migration Statistics database.
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Recommendations to boost productivity and labour market inclusion • Increase equity finance and access to capital in the scale-up phase while reducing barriers to digital trade. • Implement planned increase in parental leave reserved for fathers and increase payment rates if take-up disappoints to improve gender equality in caring responsibilities and wages. • Improve integration programmes by broader adoption of best practices across municipalities, especially for language training, and extension of the Integration Education Programme.
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For more information
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