How has Denmark managed since the financial crisis?


Growth in Danish real gross national product, GDP, has been low compared to several of our neighbouring countries since the financial crisis in 2008. This is not attributable to Denmark's fixed exchange rate policy vis-à-vis the euro. The Danish prosperity development has been in line with the countries we normally compare with.

​The Danish economy was hit by a sharp downturn after the financial crisis and subsequently took a long time to recover from the recession. Since 2013, the economy has been in an upswing, but growth has been moderate, so the real gross national product, GDP, is currently 6 per cent higher than in 2007, i.e. just before the crisis erupted. Several of Denmark's neighbouring countries have performed better in terms of pure GDP development. This applies to e.g. Sweden and Germany.

The Swedish population has grown, especially the population of working age

A major reason for the higher growth in real GDP in Sweden compared with Denmark is that the Swedish population has grown substantially, mainly as a result of large-scale immigration. When the population increases, the economy also grows, especially if growth takes place among those of working age, as seen in Sweden. But at the same time, there are more people to share the year's output. Adjustment should be made for this factor when assessing developments in prosperity.

Danish goods are sold at higher prices

Denmark has continually improved its terms of trade over a long period of time. In other words, Danish companies have been able to sell their products at ever higher prices, while import prices have risen less. Improved terms of trade increase a population's consumption opportunities beyond what real GDP growth warrants. In contrast, Sweden's terms of trade have deteriorated over the last couple of decades, and since the financial crisis the trend has been virtually flat.

Finally, Denmark has substantial income from its net foreign assets.

Danish prosperity development has mirrored that of neighbouring countries

If all this is added together, the result is the annual rate of growth in GNI per capita for the population aged 20-64 years, adjusted for terms of trade, and that is a better measure of prosperity development in a society. GNI stands for gross national income, and the 20-64-year-olds have been defined as the population of working age. 
 
Since 2007, prosperity development has been more or less the same in Denmark and in Sweden. This also applies when viewed over a long period back to the mid-1990s, and when the whole population is included.

Which role does the exchange rate play?

It has been argued that the reason why Sweden has experienced higher growth in real GDP than Denmark since the financial crisis in 2008 is that Sweden has a floating exchange rate, while Denmark pursues a fixed exchange rate policy against the euro. A closer scrutiny of the numbers will show that there is no foundation for this argument. Above all, it is not given that Sweden has, in fact, performed better, cf. the argumentation above.

Denmark's fixed exchange rate policy has created a stable framework for economic development in Denmark, which is today considered a safe haven for international investors in times of financial market turmoil. This means that for long periods the level of interest rates has been lower than in Sweden, for the benefit of investments.

Denmark's competitiveness is good. This is reflected in a high level of employment and in a stronger trend in industrial output – a large part of which is exported – in Denmark than in Sweden since the financial crisis in 2008.

Denmark has benefited substantially from its fixed exchange rate policy and the credibility of its economic policy, which has been built up over several decades. Other countries have successfully pursued other exchange rate regimes.

So the higher annual rate of growth in real GDP in Sweden is not due to Sweden's exchange rate regime being superior to Denmark's fixed exchange rate policy.