Studi Economici
Denmark

Denmark

Population 5.8 million
GDP 60,897 US$
A2
Country risk assessment
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Synthesis

major macro economic indicators

  2017 2018 2019 (e) 2020 (f)
GDP growth (%) 2.3 1.5 2.1 1.8
Inflation (yearly average, %) 1.2 0.8 0.8 1.1
Budget balance (% GDP) 1.7 0.8 2.2 0.5
Current account balance (% GDP) 7.8 7.0 8.0 7.5
Public debt (% GDP) 35.5 34.2 33.1 32.5

 

(e): Estimate. (f): Forecast.

STRENGTHS

  • World’s second largest shipping operator (2018)
  • Almost energy self-sufficient (oil and gas in the North Sea and Greenland)
  • Niche industries with cyclically non-sensitive export goods
  • Well managed public finances
  • Large current account surplus
  • Krone pegged to the euro

WEAKNESSES

  • mall open economy sensitive to external demand, especially to UK and the looming Brexit
  • Government instability related to the fragmentation of parliament (threshold for the parliament is only 2% for a party; 4 extra seats for Faroer Islands and Greenland)
  • Very high household debt (281% of disposable income, 2018)
  • Public sector constitutes a significant part of the country’s employment (26% of employees in mid of 2019)
  • High external debt (145% of GDP, 2018)
  • Strengthening independence movement in Greenland

Risk assessment

Economy bucks the trend, but this is unlikely to last

The Danish economy seems to be resilient towards the global growth headwinds thanks to its specialization on export goods such as pharmaceuticals and wind turbines (both around 13% of total goods exports) that are quite robust against cyclical changes. Nevertheless, the declining global trade will increasingly affect shipping, one of the biggest industries in Denmark, which accounts for 50% of total service exports. The subdued growth in the main export destinations should lead to a slower trade growth in goods exports in 2020 too, which should dampen the overall GDP result in 2020. Even then, GDP remains on a high level, thanks to the constant robust personal consumption. Here, several factors are pulling in different directions. On the positive side, the interest rates are very low. To hold the krone in a peg with the euro, the Danish National Bank has to, more or less, copy the monetary policy of the ECB. This led to a cut of the certificates of deposit rate from -0.65% to -0.75% in September 2019. The DNB monetary policy, parallel to the ECB policy, should remain unchanged in 2020. Additionally, the price pressure should stay low in 2020, except for smokers. The government decided to increase the price of a pack of cigarettes by 12.5% (5 DKK) in January 2020, which will be mirrored by a small increase in the inflation rate. At the end of the year, a payment of property tax rebates is planned, which should foster private consumption too. However, wage increase should be subdued in 2020, as the labour force is increasing due to a gradual increase of the retirement age towards 67 in 2022. Additionally, the private household debt remains immense. Therefore, only a moderate private consumption is expected in 2020. The government plans higher spending on environment protection and welfare, which should also foster GDP growth. Private investments were negative in 2019 and should show some mild rebound in 2020. Housing investments however, will not continue at this level, as prices are slowly relaxing, with a huge numbers of new residents now fresh on the market.

 

Healthy fiscal policy and a substantial current account surplus

The government plans several spending projects for 2020 especially in the area of climate (i.e. research projects), welfare (more staff for kindergartens, support of low-income families), education and security (more financial support for the police). This additional spending should be financed by a rollback of reductions to inheritance taxes and by high revenues from the pension return tax. The latter has probably reached a record high in 2019, thanks to a very good performance of the equity markets, and contributed to a strong budget surplus. Denmark continues to run a large current account surplus in 2019/2020, thanks to a strong performance of the goods trade balance, where exports are showing an elevated dynamic and are easily outpacing robust imports. The surplus of the service balance, however, seems to be more affected by the slowdown of the main trading partners, and decreased in 2019. The income balance is also in surplus, thanks to the income of Danish companies abroad. Nevertheless, due to the challenging international environment the surplus is decreasing.

 

Minority government in a 15-party parliament

The Social Democratic Party (SD), led by the new Prime Minister Mette Frederiksen, won the general election in June 2019. The election result led to an exchange of power in the parliament from the conservative “blue bloc” to social-democratic-left “red block”. The SD, with its 48 out of 179 seats, has formed a minority government (which is customary in Denmark) with the support of the Social Liberal Party (16 seats), the Socialists People’s Party (14 seats), the Red-Green Alliance (13 seats), and three single parties from Greenland and the Faroes Islands. Together the red block has 94 seats in parliament. The opposition consists of the conservative-liberal party “Venstre” (43 seats) from former Prime Minister Rasmussen, the right-wing Danish People’s Party (16 seats), the Conservative People’s Party (12 seats), the green party “Alternative” (5 seats) and the right-wing party “New Right” (4 seats). The SD-government is aiming at a mixed policy, with higher spending on welfare and environmental protection on the one hand, but maintaining the previous government’s hard-line stance on immigration (especially illegal) on the other. The latter aspect could be the touchstone for the relationship of the SD with the other red-block parties. Nevertheless, the last governments have proved to be robust and maintained until the end of their term, which would be in Frederiksen’s case June of 2023.

 

Last update : February 2020

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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