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Denmark Economic Analysis

Autor:   •  June 7, 2016  •  Case Study  •  2,233 Words (9 Pages)  •  637 Views

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1.0        Introduction        

The Danish economy is a small and open modern market economy, featuring a large production for industrial goods and oil and gas, technologically advanced agricultural sector, a developed industry in pharmaceuticals. These key economies contribute to Denmark’s heavy dependence on foreign trade, which drives the economy. It exports mostly to Europe itself, in which Germany is their largest import partner with 15.9% of goods and products. Due to their heavy reliance on trade, Denmark is part of collaborative organizations such as the European Union (EU), The Organization for Economic Co-operation and Development (OECD), and the World Trade Organization (WTO). Within this framework, Denmark has lobbied for free trade through the removal of barriers.

Although the Danish economy is highly heralded through Europe, there are challenges that need to be addressed. Being a small Nordic country, Denmark faces a scarcity of natural resources, and relies heavily on imported goods and manufactured products, which elevates the cost of living. The decrease in population due to factors such as migration and a low birth rate also poses a threat to the Danish economy, as they face labor shortages. This affects Denmark’s overall productivity and will hurt the economy in the long run.

2.0        Production Output Performance Analysis

2.1        Real GDP

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Real Gross Domestic Product (Real GDP) is measure that shows the value of all goods and services produced in a certain country in a given year, expressed in constant prices.

In 2007 Denmark’s real GDP saw a spike due to a sudden boom in the property industry a few years prior. The value of both commercial and residential property rose rapidly because banks started introducing new loan types, namely deferred amortization and adjustable-rate loans. (Abildgren, Buchholst, & Staghøj, 2011) By the middle of the decade, the property market bubble became so heated that it was just a matter of time of when it burst, which happened in late 2007, right before the global financial crisis in the world economy happened. The downturn of the Danish property market intensified the effects of the global financial crisis, which saw a sharp drop in Denmark’s economy. During this period, due to the numerous loans given out prior to the crash, Danish banks were seriously lacking in funding. The financial market was all the banks could depend on for financing, which puts them in a very vulnerable position especially with the global escalation of the international liquidity crisis. (European Commission, 2015) As a result, four out of fifteen of Denmark’s largest banks closed down. The government had to intervene vastly to improve financial stability, by issuing government bonds for depositors. Besides that, they also injected capital into institutions to ease the credit crisis. (OECD, 2009) This decline lasted and sustained throughout 2008 to 2009 when Denmark’s real GDP was at an all-time low. Personal consumption expenditures dropped due to a fall in income levels and hence reduced the aggregate demand. The Danish economy headed for a slow and steady recovery in 2010 and has been growing ever since.

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