Steering a Steady Macroeconomic Course

The Danish economy has been performing close to its potential in recent years. The so-called "Whitsun package" of tax measures, implemented over the period 1999 to 2002, has achieved both a "soft landing" and a subsequent rebalancing of activity towards export markets and business investment (Figure 1). Private consumption was weak until early 2001 and price inflation remained within reasonable bounds, especially once the impact of energy prices is excluded. A robust fiscal surplus of 2 to 3 per cent of GDP has been maintained throughout. Moreover, the current account surplus has grown steadily since 1999, in sharp contrast to 1997 and 1998 when vigorous domestic demand and the resulting capacity constraints led to significant losses of export market shares and a sharp deterioration of the external balance. However, the labour market has remained tight unemployment fell below the OECD’s estimates of the structural rate in 1997 and has continued to edge down until late 2001 (Figure 2). The combination of a turnaround in the external balance and the further inroads that have been made on unemployment illustrate the extent to which the economy has been successfully re-oriented.