The Danish economy has a sound underlying macroeconomic position that has enabled it to cope well with the current international slowdown. Assuming that the projected recovery in global demand transpires, the pace of activity is expected to gradually pick up from its current rate of around 1½ per cent to around 2½ per cent growth next year, sufficient to reverse the recent up-tick in unemployment. With a current budget surplus of 1½ per cent of GDP and inflation running just above 2 per cent, the economy is well-balanced. But Denmark’s output gap is currently smaller than that of the euro area and is likely to close sooner. Monetary conditions could thus be slightly looser than desirable given available capacity, leading to some risk of future overheating. Against this backdrop, any additional stimulus from fiscal policy would be unhelpful, so that tax cuts planned for 2004 to 2007 should be combined with restrained growth in public expenditure. Prudent macroeconomic policies are in place and need to be maintained. But the principal focus of policy in Denmark is appropriately set on addressing longer term economic challenges, and this is also the main focus of this Survey.