Export to Denmark service 2

Denmark’s long-term economic development has largely followed the same pattern as other Northwestern European countries. In most of recorded history Denmark has been an agricultural country with most of the population living on a subsistence level. Since the 19th century Denmark has gone through an intense technological and institutional development. The material standard of living has experienced formerly unknown rates of growth, and the country has been industrialized and later turned into a modern service society.

Almost all of the land area of Denmark is arable. Unlike most of its neighbours, Denmark has not had extractable deposits of minerals or fossil fuels, except for the deposits of oil and natural gas in the North Sea, which started playing an economic role only during the 1980s. On the other hand, Denmark has had a logistic advantage through its long coastal line and the fact that no point on Danish land is more than 50 kilometers from the sea – an important fact for the whole period before the industrial revolution when sea transport was cheaper than land transport. Consequently, foreign trade has always been very important for the economic development of Denmark.

Already during the Stone Age there was some foreign trade, and even though trade has made up only a very modest share of total Danish value added until the 19th century, it has been decisive for economic development, both in terms of procuring vital import goods (like metals) and because new knowledge and technological skills have often come to Denmark as a byproduct of goods exchange with other countries. The emerging trade implied specialization which created demand for means of payments, and the earliest known Danish coins date from the time of Svend Tveskæg around 995.

Count Otto Thott was the foremost representative of mercantilist thought in Denmark.

According to economic historian Angus Maddison, Denmark was the sixth-most prosperous country in the world around 1600. The population size relative to arable agricultural land was small so that the farmers were relatively affluent, and Denmark was geographically close to the most dynamic and economically leading European areas since the 16th century: the Netherlands, the northern parts of Germany, and Britain. Still, 80 to 85% of the population lived in small villages on a subsistence level.

Mercantilism was the leading economic doctrine during the 17th and 18th century in Denmark, leading to the establishment of monopolies like Asiatisk Kompagni, development of physical and financial infrastructure like the first Danish bank Kurantbanken in 1736 and the first “kreditforening” (a kind of building society) in 1797, and the acquisition of some minor Danish colonies like Tranquebar.

At the end of the 18th century major agricultural reforms took place that entailed decisive structural changes. However, the Napoleonic Wars caused Copenhagen to lose its status as an international centre of finance and trade. Politically, mercantilism was gradually replaced by liberal thoughts among the ruling elite. Following a monetary reform after the Napoleonic wars, the present Danish central bank Danmarks Nationalbank was founded in 1818.

There exists national accounting data for Denmark from 1820 onwards thanks to the pioneering work of Danish economic historian Svend Aage Hansen. They find that there has been a substantial and permanent, though fluctuating, economic growth all the time since 1820. The period 1822–94 saw on average an annual growth in factor incomes of 2% (0.9% per capita) From around 1830 the agricultural sector experienced a major boom lasting several decades, producing and exporting grains, not least to Britain after 1846 when British grain import duties were abolished. When grain production became less profitable in the second half of the century, the Danish farmers made an impressive and uniquely successful change from vegetarian to animal production leading to a new boom period. Parallelly industrialization took off in Denmark from the 1870s. At the turn of the century industry (including artisanry) fed almost 30% of the population.

During the 20th century agriculture slowly dwindled in importance relative to industry, but agricultural employment was only during the 1950s surpassed by industrial employment. The first half of the century was marked by the two world wars and the Great Depression during the 1930s. After World War II Denmark took part in the increasingly close international cooperation, joining OEEC/OECD, IMF, GATT/WTO, and from 1972 the European Economic Community, later European Union. Foreign trade increased heavily relative to GDP. The economic role of the public sector increased considerably, and the country was increasingly transformed from an industrial country to a country dominated by production of services. The years 1958–73 were an unprecedented high-growth period. The 1960s are the decade with the highest registered real per capita growth in GDP ever, i.e. 4.5% annually.^[

During the 1970s Denmark was plunged into a crisis, initiated by the 1973 oil crisis leading to the hitherto unknown phenomenon stagflation. For the next decades the Danish economy struggled with several major so-called “balance problems”: High unemployment, current account deficits, inflation, and government debt. From the 1980s economic policies have increasingly been oriented towards a long-term perspective, and gradually a series of structural reforms have solved these problems. In 1994 active labour market policies were introduced that via a series of labour market reforms have helped reducing structural unemployment considerably. A series of tax reforms from 1987 onwards, reducing tax deductions on interest payments, and the increasing importance of compulsory labour market-based funded pensions from the 1990s have increased private savings rates considerably, consequently transforming secular current account deficits to secular surpluses. The announcement of a consistent and hence more credible fixed exchange rate in 1982 has helped reducing the inflation rate.

In the first decade of the 21st century new economic policy issues have emerged. A growing awareness that future demographic changes, in particular increasing longevity, could threaten fiscal sustainability, implying very large fiscal deficits in future decades, led to major political agreements in 2006 and 2011, both increasing the future eligibility age of receiving public age-related pensions. Mainly because of these changes, from 2012 onwards the Danish fiscal sustainability problem is generally considered to be solved.^[40] Instead, issues like decreasing productivity growth rates and increasing inequality in income distribution and consumption possibilities are prevalent in the public debate.

The global Great Recession during the late 2000s, the accompanying Euro area debt crisis and their repercussions marked the Danish economy for several years. Until 2017, unemployment rates have generally been considered to be above their structural level, implying a relatively stagnating economy from a business-cycle point of view. From 2017/18 this is no longer considered to be the case, and attention has been redirected to the need of avoiding a potential overheating situation.

Income, wealth and income distribution

Average per capita income is high in an international context. According to the World Bank, gross national income per capita was the tenth-highest in the world at $55,220 in 2017. Correcting for purchasing power, income was Int$52,390 or 16th-highest among the 187 countries.

During the last three decades household saving rates in Denmark have increased considerably. This is to a large extent caused by two major institutional changes: A series of tax reforms from 1987 to 2009 considerably reduced the effective subsidization of private debt implicit in the rules for tax deductions of household interest payments. Secondly, compulsory funded pension schemes became normal for most employees from the 1990s. Over the years, the wealth of the Danish pension funds have accumulated so that in 2016 it constituted twice the size of Denmark’s GDP. The pension wealth consequently is a very important both for the life-cycle of a typical individual Danish household and for the national economy. A large part of the pension wealth is invested abroad, thus giving rise to a fair amount of foreign capital income. In 2015, average household assets were more than 600% of their disposable income, among OECD countries second only to the Netherlands. At the same time, average household gross debt was almost 300% of disposable income, which is also at the highest level in OECD. Household balance sheets are consequently very large in Denmark compared to most other countries. Danmarks Nationalbank, the Danish central bank, has attributed this to a well-developed financial system.