Why has the Danish economy going into recession, while ours hasn't?
If you think things are bad here, give thanks for not being Danish. The first quarter saw the Danes slide into a real, proper recession with its economy shrinking by 0.6%. Compared to that, our estimated growth of over 2% looks healthy.
Danish consumers have cut back on spending after high oil and food prices drove inflation upwards. This has been exacerbated by slumping property values and increased costs of borrowing.
If this sounds familiar, it should: these are the underlying causes of our own economic woes, too. And this illustrates almost perfectly that the issues facing the UK economy are global in scale.
So if the Danes have slumped into recession, should we expect the same? There are some key differences between the two economies which suggest this is unlikely.
The main difference is in taxation. Denmark has what are officially the world's highest taxes, with VAT rates of 25% and income tax ranging from 42% to 63%, which combine to give an average overall tax burden of around 70%. The UK, on the other hand, has income tax ranging from 20%-40%, and an average overall tax burden of 46%.
The main effect of this, according to the economists at least, is to make the economy more resiliant - so even when things get a bit tougher, people don't cut back on their spending as drastically. So while companies which have pitched themselves at the "luxury" end of the market - like Marks and Spencer - might suffer temporarily, mid-range and budget products shouldn't be hit hard.