The economy has continued to recover in 2004 due to a strong pick-up in private consumption and exports. Prospects look bright for 2005 and 2006, as business investment should add to activity on top of continued solid household spending and fast-growing export demand. The labour market is gradually improving, but inflationary pressures are likely to remain contained until 2006 when labour- and product-market slack is expected to disappear. The outlook is very much shaped by the 2004 fiscal easing, which provided a large boost to household disposable income. Monetary policy settings are currently supportive of growth, but will become less so by 2006 as the European Central Bank gradually raises interest rates and Denmark follows suit. Further initiatives to increase labour force participation would help to sustain the upturn and bring employment closer to the government’s medium-term target. ...