On 4 May 2016 the IMF issued a report on the economy of Denmark following the conclusion of consultations under Article IV of the IMF’s articles of agreement.

Denmark scores well in international comparisons of business competitiveness and the flexible labor market has led to high employment. Income inequality in Denmark is the lowest in the OECD. However output growth has been weak for a long period partly due to slow growth of the working population and a decline in oil and gas production. Problems are also connected to low productivity growth.

The IMF expects the economic recovery to be slow and muted. Private consumption is the main driver for growth, spurred by low interest rates and low oil prices. The economy is forecast to grow by 1.3% in 2016 and by 1.6% in 2017, with further falls in unemployment. There are downside risks from slower economic growth of trading partners and from any spike in interest rates which could cause problems in view of the high levels of household debt.

Economic policy should in the view of the IMF include product market liberalization and an increase in the flexibility of housing supply. Denmark should also reduce adverse incentives from housing taxation. Valuation freezes for land and property taxes should be ended and the IMF welcomes the government’s plan to move to a new housing valuation system which is to be discussed later in 2016.

The IMF notes that labor market reforms have be implemented in recent years and further efforts are being made. The IMF encourages the government to move on to the second phase of the reform including reductions of taxes on low income earners to improve work incentives.