Estimated at 1.8% in 2019, Denmark’s GDP growth remains relatively robust so far, both with regard to its long-term potential (estimated at 1.6% according to the OECD) and to the European average (1.5%). In 2020, growth is expected to slow somewhat, and our forecast of 1.5% places it among the leading EU countries.
Growth and inflation Buoyant consumption
Denmark’s specialisation in the pharmaceutical and digital industries helped shelter it from the slowdown in international trade in 2019. Exports increased by 3.8%, compared to 2.4% in 2018. Yet export growth is likely to be less buoyant in 2020, given the feeble growth forecasts for key trading partners such as Germany (15% of exports). Although uncertainty over Brexit was partially lifted with the signing of the withdrawal agreement (see article on the UK), it is not about to disappear[1]. In 2019, this uncertainty helped erode the confidence of business leaders (the business climate component of the PMI declined), and investment contracted. By 2021, however, investment should benefit from the renovation of the biggest North Sea oil platform.
Although private consumption was hampered in 2019, it continues to drive demand and should be a support factor in 2020. In a country with a high labour market participation rate (79.4% for the 16-64 age group), the dynamic momentum of employment and wages (+2.5% on average in 2019) has a major gearing effect on household confidence and spending. Household spending is also bolstered by low inflation (barely equal to 1%) and interest rates, which have dropped into negative territory for certain home loans.
Monetary and fiscal support
The Danish krone is pegged to the euro, so the Danish central bank has followed the ECB’s lead and adopted a very accommodating monetary policy. In September 2019, it reduced the repo rate to -0.75% to defend the kroner’s exchange rate against the euro.
In 2019, a sharp increase in the pension yield tax helped swell the fiscal surplus, which amounted to 2.2% of GDP. The public debt ratio, which is one of the lowest in the European Union, was trimmed to 33% of GDP. The government recently tightened its targets for reducing greenhouse gas emissions[2], on the grounds that it wanted to use its manoeuvring room on behalf of a more ambitious social and environmental policy. In 2020, the government plans to invest DKK 1 bn in research on more eco-friendly, carbon-neutral alternative technologies. The budget also calls for increasing spending on public services, including healthcare and education.
