Other publications may include books, quarterly reviews, annual reports and economic bulletins from the ECB, PhD theses and Danmarks Nationalbank’s policies.

Potential Output in Denmark - Part 1

The Danish economy has seen extraordinarily strong cyclical fluctuations in recent years. In Part 2 of this Monetary Review we analyse how far the economy is from a normal cyclical position at present and how much spare capacity there is in the economy. The article provides a non-technical summary of the most important findings and conclusions. The analyses show that the Danish economy has modest spare capacity at the moment. The output gap, which indicates the deviation from the output level that is sustainable in the longer term, is estimated to be -1.6 pct. in the 2nd quarter of 2011. But the gap to the sustainable output level has narrowed considerably since 2009, and we expect this to continue in the coming years. The current spare capacity is first and foremost reflected in a smaller labour force relative to the normal level. Unemployment, on the other hand, is only slightly higher than the level that is found to be consistent with sustainable wage and price inflation in the longer term. Finally, the firms' capacity utilisation is close to the normal level, indicating a limited potential for productivity growth through more intensive resource utilisation.