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World economies

November 20, 2017

Denmark

Denmark has a mixed economy based on services and manufacturing but has limited natural resources. The few significant and valuable natural resources available include mature oil and gas wells in the North Sea.

However, the country has enough oil and gas reserves to ensure its energy independence. It relies heavily on human resources and has one of the world’s lowest levels of income inequality, according to the World Bank.

Denmark is a wealthy country. Its GDP per-capita is among the highest in the world as is Danish taxation.

The Danish modern market economy features a high-tech agriculture sector, advanced industry with world-leading firms in pharmaceuticals, maritime shipping and renewable energy. However, the development of its heavy industry is slow due to limited natural resources.

Denmark is the world’s leading manufacturer of wind turbines and exports 85 per cent of its production. The trade and investment policies are liberal and encourage foreign investment.

Nearly 90pc of the country’s agricultural revenue comes from livestock production. Industry employs almost 20pc of the active population and contributes 22pc of GDP. The major activity sectors are the chemical, pharmaceutical and biotechnology industries. The services sector contributes around three-quarters of GDP, employing the largest share of the population 78pc.

The country is highly dependent on foreign trade, with exports comprising the largest component of GDP. It is a net exporter of food, oil, and gas and enjoys a comfortable balance of payments surplus, but depends on imports of raw materials for the manufacturing sector.

The global financial crisis of 2008-2009 adversely affected Danish GDP growth. Since 2010, however, it is experiencing a modest economic expansion.

The Danish economy is in a period of stable growth and rising employment, largely due to reforms that have provided the basis for a sustainable development. The economy further grew by 1.7pc in 2016. Employment growth remains robust, reaching 1.5pc in 2016, driven by private sector employment, particularly in the service sector.

Economic growth is forecast to strengthen this year and next, supported by robust private consumption and dynamic investment and stronger foreign demand. Employment growth is expected to remain strong.

The outlook over the next two years is generally good. The government expects to end 2017 with the highest growth rate for 10 years. According to the Danish Ministry for Economic Affairs, the government expects two per cent growth in 2017.

However, the Danish government expects the growth to decline slightly in 2018 to 1.8pc, following sluggish growth in public demand due to slightly weaker growth abroad, as well as the pressure on available production resources. Private consumption is forecast to remain the main growth driver.

The unemployment rate is expected to fall to 5.8pc in 2017 after hitting 6.2pc in 2016 4.2pc in 2017.

In 2017, the first half growth compared with the same period in 2016 was reported to be 2.7pc. The Denmark National bank predicts the economy to expand by 2.3pc in 2017.

In 2018 and 2019, annual growth is expected to be 1.8pc and 1.7pc. Employment is forecast to grow faster than the labour force, reducing the unemployment rate to 4.2pc in 2018.

In 2017 and 2018, the government deficit is estimated to be respectively 1.5pc and 1.1pc of GDP. The deficit on the structural balance proposed at 0.4pc of GDP in the budget for 2017. The deficits thus remain within the limits of the Budget Law and in relation to EU rules.

Netherlands

The Netherlands is the sixth-largest economy in the European Union. As part of the euro zone, its monetary policy is controlled by the European Central Bank.

It plays an important role as a European transportation hub, with a persistently high trade surplus, stable industrial relations, and moderate unemployment.

The Netherlands have a prosperous and open economy, which depends heavily on foreign trade. Its GDP per capita is roughly $48,860 which makes it one of richest nations in the world.

After two years of recession (2012-2013) during which GDP contracted by -1.1pc and -0.2pc, the Netherlands is experiencing a period of economic growth since 2014.

Sustained by dynamic household consumption, nominal GDP growth has continued to recover reaching three per cent in 2016. Benefiting from the improved economic climate in Europe and the rest of the world, the Dutch economy is performing better than expected.

According to the latest projections by CPB Netherlands Bureau for Economic Policy Analysis, the Dutch economy grew 3.8pc (YoY) in the 2017 second-quarter from 2.4pc in the first quarter, mainly driven by higher household consumption and exports while government spending rebounded.

Based on improved quarterly performance, Statistics Netherlands (CBS) revised up its growth forecast to 3.3pc for 2017. For 2018, the growth projection is now for 2.5pc.

Unemployment continues to move lower. In the first seven-months, unemployment declined from 5.4pc to 4.8pc of the labour force. This fall is attributable to strong job creation.

Unemployment will dip to 4.9pc in 2017. As a result of the continuing improvement in the economy, unemployment is projected to decrease rapidly to 4.3pc in 2018, the lowest levels in a decade, with some sectors reporting employment shortages

The budget balance for 2016 showed a surplus of 0.4pc of GDP for the first time since 2008. The surplus is expected to rise to 0.5pc in 2017 and further to 0.8pc of GDP in 2018.

The budget balance will remain considerably more favourable than forecast, mainly because the ongoing economic growth is generating higher revenues from taxes and social insurance contributions. The rising surplus will help to push down the public debt.

Published in Dawn, The Business and Finance Weekly, November 20th, 2017