- Business Monitor International Ltd www denmark Q- ---- core Views < ALACRA META ABSTRACT>Although Denmark is not part of the eurozone monetary union, its deep financial and trade links have been strengthened by its pegged exchange rate regime, leaving the economy significantly exposed to spill over effects of the eurozone debt crisis. A burst housing bubble and subsequent bank failures have made Denmark a nordic underperformer, and the after-effects will continue to weigh on growth in the medium term. ...Denmark has sizeable trade and investment linkages with the common currency bloc, and a major deterioration in growth in the core countries, or renewed flare up of the sovereign debt crisis, could push Denmark back into recessionary territory. In light of growing disillusionment with the current government and inter-coalition tensions over the recent passing of tax legislation and social benefit reform, there is potential for strains on the government s political cohesion to continue building. In turn, this could raise the potential for a break-up of the government and early elections being called further down the line. ...However, if house prices were to resume a downward trend, this would put a stronger economic recovery out of reach. - Business Monitor International Ltd www executive summary
...Reform of Denmark s welfare model will proceed in the coming years as the government seeks to boost long-term growth potential while safeguarding its AAA credit rating. However, progress will remain slow, and any attempts to push changes through too quickly could backfire. Popular support for the centre-left governing coalition of Prime Minister Helle Thorning-Schmidt continues to suffer amidst sluggish employment growth and a policy agenda that has focused on scaling back social benefit spending. While the adoption of centre-right ideals by Thorning-Schmidt s Social Democrat Party has come at the expense of its sup- port base, it nonetheless reflects a growing consensus for the need for welfare reform across major political parties on both sides of the political spectrum. As such, we expect welfare reform to continue regardless of the precise make-up of future coalitions after the next general election, which is due by September ----. ...The large presence of the public sector in the economy has con- tributed to productivity growth falling well behind developed state peers, weighing on Denmark s competitiveness. Despite having one of the best rated business environments based on our own proprietary ratings as well other measures including the World Bank s Ease of Doing Business Rank (which ranks Denmark - th overall globally), Denmark s loss of competitive- ness is reflected in stagnant levels of foreign direct investment into the country since ----.
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