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World > Europe > Denmark > Economy (Notes)

Denmark - Economy (Notes)


ECONOMY
Denmark's industrialized market economy depends on imported raw materials and foreign trade. Within the European Union, Denmark advocates a liberal trade policy. Its standard of living is among the highest in the world, and the Danes devote about 1% of gross national product (GNP) to foreign aid to less developed countries. In addition, Denmark in 2006 devoted 0.81% of GNP for overseas development, including for peace and stability purposes, including refugee pre-asylum costs, and for environmental purposes in Central and Eastern Europe and developing countries.

Denmark is a net exporter of food and energy. Its principal exports are machinery, instruments, and food products. The United States is Denmark's largest non-European trading partner, accounting for about 6% of total Danish merchandise trade. Aircraft, computers, machinery, and instruments are among the major U.S. exports to Denmark. Among major Danish exports to the United States are industrial machinery, chemical products, furniture, pharmaceuticals, canned ham and pork, windmills, and plastic toy blocks (Lego). In addition, Denmark has a significant services trade with the U.S., a major share of it stemming from Danish-controlled ships engaged in container traffic to and from the United States (notably by Maersk-SeaLand). There are some 375 U.S.-owned companies in Denmark.

The Danish economy is fundamentally strong. Since the mid-1990s, economic growth rates have averaged close to 3%, the formerly high official unemployment rate stands at around 4%, and public finances have been in surplus. Except for one year--1998--Denmark since 1989 has had comfortable balance-of-payments current account surpluses, in 2006 corresponding to 2.45% of GDP. The former Social Democratic-led government coalition lowered marginal income tax rates but at the same time reduced tax deductions, increased environmental taxes, and introduced a series of user fees, thus increasing overall revenues. Under the tax reform plan agreed upon by the government and the Danish People's Party on March 31, 2003, taxpayers received tax relief in 2004, albeit at a lesser rate than the government proposed originally. Denmark has maintained a stable currency policy since the early 1980s, formerly with the krone linked to the Deutschmark and since January 1, 1999, to the euro. Denmark meets, and even exceeds, the economic convergence criteria for participating in the third phase (a common European currency--the euro) of the European Monetary Union (EMU). Although a referendum on EMU participation held on September 28, 2000 resulted in a firm 'no' and Denmark, therefore, has not yet adopted the euro, opinion polls show support for EMU membership now exceeds 60%.

Danes are generally proud of their welfare safety net, which ensures that all Danes receive basic health care and need not fear real poverty. However, at present the number of working-age Danes living mostly on government transfer payments counts more than 800,000 persons (roughly 23% of the working-age population). Although this number has been reduced in recent years, the heavy load of government transfer payments burden other parts of the system. Health care, other than for acute problems, and care for the elderly and children have particularly suffered, while taxes remain at a painful level. More than one-fourth of the labor force is employed in the public sector.

Greenland and the Faroe Islands
The Greenland economy has increased by an average of some 3% to 4% annually since 1993, the result of increasing catches and exports of shrimp, Greenland halibut and, more recently, crab. However, it was not until 1999 that the economy had fully recovered from the economic downturn in the early 1990s. During the last decade the Greenland Home Rule Government (GHRG) has pursued a fiscal policy with mostly small budget surpluses and low inflation. The GHRG has taken initiatives to increase the labor force and thus employment by, among other things, raising the retirement age from 60 to 63 years. However, structural reforms are still needed in order to create a broader business base and economic growth through more efficient use of existing resources in both the public and the private sector. Due to the continued critical dependence on exports of fish, the economy remains very vulnerable to foreign developments. The public sector, including publicly owned enterprises and the municipalities, plays the dominant role in Greenland's economy. Close to one-half of the government revenues come from Danish Government grants, an important supplement of GDP. Greenland has registered a foreign trade deficit since the closure of the last remaining lead and zinc mine in 1989. Despite several interesting hydrocarbon and mineral exploration activities, it will take several years before production can materialize. Two major aluminum producers reportedly have expressed interest in building smelters in Greenland to take advantage of abundant hydropower potential. Besides a continued increase in local content, i.e., using a Greenlandic rather than Danish work force in both the public and private sectors, tourism appears to be the sector that offers the best near-term potential, and even this is limited due to a short season and high costs. Air Greenland has announced it will begin its first scheduled service to North America in May 2007, with summer season flights to Baltimore.

Politically, the Greenland Home Rule Government has had increasing autonomy since its creation in 1979. An independent commission from Greenland made recommendations for greater self-rule in 2003. In May 2003, the Danish and Greenland Home Rule governments reached agreement on a set of power-sharing principles on Greenland's involvement in Danish foreign and security policy. The so-called Itilleq Declaration provides that Greenland will have foreign policy involvement with a view toward having equal status on questions of concern to both Denmark and Greenland. The Danish Government intends to form, together with Greenland, a new Danish-Greenlandic Commission to make joint recommendations to the Danish parliament on ways to update the Home Rule Act of 1979.

The Faroese economy has performed strongly since the mid-1990s with annual growth rates averaging close to 6%, mostly as a result of increasing fish landings and salmon farming and high and stable export prices. Unemployment is insignificant and there are labor shortages in several sectors. Most of the Faroese who emigrated in the early 1990s (some 10% of the population) due to the economic recession have now returned to the Faroe Islands. The positive economic development also has helped the Faroese Home Rule Government produce increasing budget surpluses that in turn help to reduce the large public debt, most of it to Denmark. However, the total dependence on fishing and salmon farming makes the Faroese economy very vulnerable, and the present fishing efforts appear in excess of what is required to ensure a sustainable level of fishing in the long term. Initial discoveries of oil in the Faroese area give hope for eventual oil production, which may lay the basis for a more diversified economy and thus less dependence on Denmark and Danish economic assistance. Aided by a substantial annual subsidy from Denmark, albeit reduced from some 10% of GDP to about 6% in 2002, the Faroese have a standard of living comparable to that of the Danes and other Scandinavians.

Politically, the present Faroese Home Rule Government has initiated a process toward greater independence from Denmark, if not complete secession from the realm, a project of which the outcome is too early to predict. In that respect, agreement on how to phase out the Danish subsidy plays a crucial role.


Facts at a Glance: Geography - People - Government - Economy - Communications - Transportation - Military - Climate - Current Time - Ranking Positions - Danish Krone Exchange Rates
Notes and Commentary: People - Economy - Government and Political Conditions - Foreign Relations - Relations with U.S.



Facts at a Glance
Geography
People
Government
Economy
Communications
Transportation
Military
Climate
Current Time
Ranking Positions
Danish Krone Exchange Rates


Notes and Commentary
People
Economy
Government and Political Conditions
Foreign Relations
Relations with U.S.





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