Economic Analysis
Denmark

Denmark

Population 5.8 million
GDP per capita 59,770 US$
A2
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A1
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Synthesis

major macro economic indicators

  2018 2019 2020 (e) 2021 (f)
GDP growth (%) 2.2 2.9 -4.2 3.3
Inflation (yearly average, %) 0.8 0.8 0.4 0.8
Budget balance (% GDP) 0.7 3.8 -3.7 -2.5
Current account balance (% GDP) 7.0 8.9 7.1 7.3
Public debt (% GDP) 34.0 33.3 42.0 40.4

(e): Estimate (f): Forecast

STRENGTHS

  • World’s largest shipping operator (2019)
  • Almost energy self-sufficient (oil and gas in the North Sea and Greenland)
  • Niche industries with cyclically non-sensitive export goods (e.g. pharmaceuticals)
  • Well managed public finances
  • Large current account surplus
  • Krone pegged to the euro

WEAKNESSES

  • Small open economy sensitive to external demand, particularly from the UK
  • Government instability linked to the fragmentation of parliament (the threshold to enter the parliament is only 2% for a party; 4 extra seats for Faroer Islands and Greenland)
  • Very high household debt (265% of disposable income, 2019)
  • The public sector constitutes a significant part of the country’s employment (26% of employees as of mid-2019)
  • High external debt (143% of GDP, 2019)
  • Strengthening independence movement in Greenland

Risk assessment

Moderate recovery ahead

In 2021, a moderate recovery is expected for the Danish economy. This recovery comes after the global COVID-19 pandemic hit Denmark in spring 2020. The government decided a lockdown that stopped public life, closed many shops, schools, and limited gatherings. This strategy helped to contain the number of COVID-19 cases to a very modest level. A second wave started in early autumn of 2020, which turned out as significantly stronger than the first, was countered by another lockdown with similar measures. Because of the lack of consumption, investment and external trade during the first lockdown, Denmark had entered a severe recession in the first half of 2020. It was partly balanced out by a strong rebound in Q3 2020, as global demand for Danish machinery picked up again and consumption stood up strongly, as Danes stayed at home for their holidays. For 2021, a boost in consumption growth is expected as the government decided on the disbursement of frozen holiday pay in Q4 2020 (holiday pays are often saved for the pre-retirement time), of which DKK 39 billion (1.7% of GDP) should actually go into Danish pockets. Furthermore, 800,000 homeowners will receive a refund of overpaid property tax in Q1 2021. Moreover, the unemployment rate already dropped from its peak of 5.3% in May to 4.3% in September 2020 and should fall further, but will not reach the pre-crisis level of 3.1% anytime soon, as several sectors are still struggling with high unemployment (e.g. tourism). The government support of last year should decrease in 2021, as some measures should end in December 2020, while the support for closed shops and gastronomy businesses will be reintroduced. Nevertheless, the agreement on the renovation in the social housing sector and the postponement of the increase of the energy tax should further encourage the economic recovery. The central bank of Denmark had increased its policy rate by 15 basis points to -0.6% in spring 2020 in order to hold the Danish krone in the peg with the euro (its main target). The monetary policymakers should leave this rate unchanged in 2021, but will probably extend their extraordinary lending facilities, in order to mirror the already announced further expansionary measures of the ECB in 2021.  

 

Back to a strong current account surplus

The current account surplus should increase somewhat from its already high level. One reason behind this is the robust export sector that is partly concentrated on pharmaceuticals (16% of all exports) and agricultural/food products (13%). The demand for Danish machinery should pick up further, as the economies of the main export destinations – Germany, Sweden and Norway – should recover moderately. The general government deficit remained subdued in 2020, as the government’s relief for business was only used by around 10% of the package. In 2021, the budget balance will improve but stay in the negative area, due to some further expansive measures and reduced revenues. However, it should fall below the Maastricht target of 3% and the public debt level will remain muted. 

 

Popular government coalition with big ecological plans

Prime Minister Mette Frederiksen from the Social Democratic Party (SD) is leading a minority government with the support of the “red-block”, the Social Liberal Party, the Socialists People’s Party, the Red-Green Alliance and three single parties from Greenland and the Faroes Islands. Since spring 2020, support numbers in polls for the SD skyrocketed and reached 34%, which is one of the highest support share for a single party in the last 10 years. The early and strong response of the government towards COVID-19 was one reason, another one being Denmark’s participation in a group of countries that promoted an austerity policy within the EU, which decreased the share of grants in the EU’s recovery fund. Furthermore, Denmark could increase its rebate package in the 7-yearbudget from DKK 1 billion to DKK 3 billion per year. In mid-July 2020, 95% of the members of parliament voted for a new Climate Act, which declares a 70% reduction of CO2 emissions compared to 1990 over 11 years. This project, and the manner of its implementation, could become an issue between the “red-block”- parties. Nevertheless, Frederiksen should remain in office until the next regular election in 2023.

 

Last updated: March 2021

Payment

Denmark is in the process of becoming a cashless society. 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 10 days to settle the principal amount, plus any penalties for interest provided for in the initial agreement.

Once the 10 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 10 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 August 1, 2002 is either the Danish National Bank’s benchmark, or the lending rate (udlånsrente) in force on January 1 or July 1 of the year in question, plus an additional 8%.

 

Legal proceedings
Fast-track proceedings

Since January 1, 2008, overdue payments which do not exceed DKK 50,000 or €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, the efficiency of the Danish court system means that 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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