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August 20th, 2012

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A tiny island of hope may be developing in the middle of the current sea of lousy economic news.

Denmark appears to be growing stronger when it comes to competing with other countries. For years, high wages and low productivity have caused the country to lag behind its foreign competitors, but it now seems to be making up some lost ground, according to the latest figures from the Business and Growth Ministry.

"I do not want to be overly optimistic, but there are cautiously positive signs that we may be able to celebrate," the business and growth minister, Ole Sohn (Socialistisk Folkeparti), told Politiken newspaper.

Wages have been rising faster in Sweden and Germany than in Denmark, and a combination of those smaller wage increases coupled with higher productivity in Danish companies has strengthened the country’s competitiveness and helped to snare a larger share of export markets.

"Danish competitiveness has been deteriorating since the late 1990s, but we are less inclined to notice competitiveness during good times,” said Sohn.

Sohn said that productivity first started to turn around in 2009.

"Companies have cut back on things that were not productive and made wage agreements that are lower than those in the countries we normally compare ourselves to," said Sohn.

Sohn said that businesses need to assist the government in developing economic policies that create international trust in Denmark. He said that focusing on things like early retirement and tax reform would strengthen the economy.

Despite improved competitiveness and governmental efforts to kick start the economy, unemployment rose in the past few months after a long period of stability.

There were 164,200 unemployed in June – 1,500 more than the previous month.

"We have managed to somewhat maintain the level of unemployment, but we are a small country with an open economy and dependent on what happens abroad,” said Sohn. “When the southern European countries are hit by the economic crisis, our exports to those countries drop.”

Sohn said that the unemployment situation would be worse without the improvement in competitiveness and the government’s economic kick-start efforts.

Sohn also said that the sinking value of the euro has made it easier to export to countries like Sweden, the United Kingdom and the United States.

Although the news of the nation’s increasing competiveness was well received by economists, many warned that there was still a long way to go.

"It's a good sign that competitiveness has improved,” Helge Pedersen, the chief economist at Nordea, told Politiken. “But we must do even better if we are again to be among the world's top-10 in terms of GDP per capita."

Pedersen said that companies should be given credit for keeping wages down and increasing production without hiring new workers.

The left-leaning think tank Arbejderbevægelsens Erhvervsråd (AE) agreed with both Pedersen’s optimism and her caution.

"Although of course you must be careful not to over-interpret the numbers, is there reason to be optimistic," AE's Lars Andersen told Politiken. "We have seen a distinct improvement in productivity in companies where the most efficient businesses survive and expand, but know from experience that we also need domestic demand to drive consumption and investment.”

Libertarian think tank Cepos was less enthusiastic about the reported uptick. 

"The improvement happened from 2008 to 2009, due almost exclusively to productivity increases by the companies,” Cepos consultent Martin Kyed told Politiken. “There are no signs that we will move further along the track.”

Kyed said that from 2009 to 2010, exchange rates and the euro crisis were the prime reasons for the improved competiveness numbers as they related to wage competition.

“There is not much to commend the government for," Kyed said.

Sohn is aware that any improvements are fragile and will introduce proposals in the fall to strengthen small and medium-sized businesses.

"They are the hub of job creation,” said Sohn. “Global companies often move jobs offshore, so there are few increases in openings. We need to help the entrepreneurs like the engineer or blacksmith with a good idea get started and grow.”