DENMARK: INDUSTRIAL PRODUCTION According to OECD forecasts, GDP growth should remain solid at 3% in 2022 despite the geopolitical environment. Although Denmark is self-sufficient in terms of its energy needs, business could slow due to sluggish global demand and rising inflation.
Looking beyond the cyclical environment, Denmark’s economic momentum fits within a process of improving its long-term growth potential. Buoyed by very dynamic investment (+12.2% above the pre-crisis level in Q1 2022), notably in the renovation of real estate assets and digitalisation of the economy, the nature of this growth suggests that Denmark could end up strengthening its total factor productivity.
Like many other European countries, the Danish economy is nonetheless threatened in the short term by rising inflation. Driven up by soaring energy and food prices, inflation hit 7.4% y/y in May, the highest level since June 1984. This inflationary surge is squeezing household purchasing power, and confidence plunged in May to an all-time low of -22.4. Faced with high inflation, the Danish central bank has followed in the wake of the European Central Bank so far by maintaining its key policy rate unchanged (at -0.6%), while gradually adopting a more hawkish message about the possibility of tightening monetary policy over the course of 2022.
The job market situation continues to improve with an unemployment rate of 4.3% in April – close to an all-time low – and a labour market participation rate that continues to rise (80.1% in Q1 2022). The number of job vacancies continues to hold at record highs, a sign that labour shortages are intensifying.
From a fiscal perspective, the government began tightening the screws as of 2021, when it generated a fiscal surplus of 2.3% of GDP. The government is expected to maintain tight control over public finances over the next two years. This should help erase some of the scars of the crisis by bringing the public debt ratio back to the 2019 level of 33.6% of GDP, after rising by more than 8 points during the Covid-19 crisis in 2020.
