OECD Economic Survey of Denmark 2021 - Presentation

2021 OECD ECONOMIC SURVEY OF DENMARK Delivering a sustainable recovery 16 December, 2021

http://www.oecd.org/economy/denmark-economic-snapshot/ @OECD

@OECDeconomy

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.

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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.

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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.

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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.

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Household gross debt is very high, but backed by substantial assets

Source: OECD, Economic Outlook and National Accounts databases.

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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.

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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

http://oe.cd/denmark @OECDeconomy @OECD

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