The economy contracted beginning in early 2008 as falling domestic demand compounded the effects of the international downturn. GDP is expected to decline by nearly 6% in 2009, before recovering in 2010. The large output gap will push inflation back down to the target range.

The economy slowed in 2008 as weakness in domestic demand was compounded by the international slowdown in the wake of financial market turbulence. Growth is expected to decline to below 2% in 2009 before recovering to 4.2% in 2010, in line with the global recovery.

Denmark is confirmed as the OECD’s highest-tax country, followed by Sweden, while Mexico and Turkey remain the lowest-taxing countries, the latest 2008 edition of Revenue Statistics says. Denmark’s tax-to-GDP ratio stood at 48.9% in 2007, while Turkey’s was at 23.7% of GDP.

The economy, which had slowed down earlier in the year as a result of monetary tightening in 2006 and political uncertainties in the spring, gained momentum after the summer elections. In the absence of shocks, growth should settle at around 6% in 2008 and 2009.