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Eco Perspectives

Denmark | Anti-recession pills
07/02/2024 • By Anis BENSAIDANI

In 2023, Denmark experienced dynamic and above-expected economic growth, in the form of an illusion given the preponderance of the pharmaceutical sector. This sector turned into the country’s main asset, to such an extent that fears of increasing dependence have appeared. Furthermore, inflation has fallen significantly since the 2023 high, while the Danish central bank is expected to continue to ease policy in line with the ECB.

Eco Perspectives

Denmark: the end of an impressive run?
12/15/2022 •

Up until now the Danish economy has continued to impress, with a strong post-Covid rebound which has propelled its GDP well above its pre-crisis level, but the future now looks a lot less bright. If inflation had not yet been able to fully undermine household purchasing power due to significant job creation and a level of over-saving which helped to mitigate the impact, these one-off shock absorbers are coming to an end and real household income is expected to fall over the coming quarters. The government is remaining relatively impassive in the face of this brutal shock and the fiscal response remains very limited, with public accounts that are in surplus and likely to remain so. Public debt should converge towards only 32% of GDP by 2024..

Eco Perspectives

Industrial sovereignty: from dream to reality
06/29/2022 •

Denmark stands out for its vigorous economic recovery, which was much stronger than that  in the other European countries. The Danish economy quickly returned to pre-crisis levels and even exceeded its pre-pandemic growth trend. Industry is in full expansion thanks to its positioning in high value-added market segments. Yet this dynamic momentum is threatened in the short term by surging inflation and job market pressures. The central bank has not yet begun the process of normalising monetary policy, although it plans to tighten monetary conditions gradually and progressively in the near future.

Eco Perspectives

Under pressure
10/05/2021 • By Jean-Luc PROUTAT

With relatively few Covid-19-related deaths, and after what proved to be a mild recession in 2020, Denmark is one of the countries that has pulled through the pandemic the best. Economic activity has already returned to pre-crisis levels, the cyclical environment was still going strong over the summer months, and the spread of the Delta variant did not pose much of a threat to a largely vaccinated population. The rapid economic recovery is already revealing a few tensions in terms of production capacity and employment. The central bank is not very alarmed and is expected to maintain the status quo, with negative money market rates. The government has begun to better target its subsidies. 

Eco Perspectives

An altogether enviable situation

04/08/2021 • By Jean-Luc PROUTAT

With relatively few deaths and only a mild decline in GDP in 2020, Denmark has been fairly resilient in the face of the Covid-19 pandemic. To counter a second wave of the virus, more restrictive health measures had to be introduced in early 2021, which will push back the timing of the recovery, albeit without jeopardising it. With its vaccination campaign unfolding smoothly and the extension of fiscal support measures, the country is well positioned to exit the crisis. To better control the krone’s peg to the euro, Denmark’s central bank has made major adjustments to its monetary policy.

Charts of the Week

Denmark: Negative rates are applied to more than 80% of corporate deposits outstanding

03/16/2021 •

Since dropping below 0% in 2015, the average deposit rate applied by Danish banks to the country’s non-financial companies (NFC) has continued to slide into negative territory (-0.47% in January 2021) as the banks recover the deposit facility rate applied by the Danmarks Nationalbank[1]. At the same time, the almost continuous increase in Danish NFC deposits outstanding was amplified in 2020 by public support measures to boost the liquidity of Danish companies during the health crisis. Similar measures were observed in the Eurozone member countries. The share of Danish NFC deposits with negative rates increased to 81.5% in October 2020

Eco Perspectives

Uncertainty remains
12/16/2020 • By Jean-Luc PROUTAT

The Danish economy has quickly rebounded after the reopening of the borders but a complete catch-up will take time since the resurgence of the Coronavirus epidemic keeps the country’s economic situation uncertain. Services exports were hard hit by the crisis in 2020, but are offset by a surge in Danish household consumption, supported by government measures. Fiscal policy should remain accommodative in 2021 and the Central Bank of Denmark will continue to defend its peg with the euro.

Eco Perspectives

An economy likely to be relatively less affected
07/14/2020 •

Faced with the Covid-19 pandemic, the authorities rapidly imposed strict protective measures that effectively maintained the health crisis under control. The economy was also in a relatively good position at the beginning of the crisis – notably thanks to low unemployment and public debt – and fiscal as well as monetary support measures were quickly introduced by the government and the central bank. With all that in mind, the OECD estimates that Denmark will be one of the most resilient economies in 2020, forecasting a fall in GDP “limited” to 5.8%.

Eco Perspectives

Not spared
04/07/2020 • By Jean-Luc PROUTAT

The Coronavirus epidemic is also sweeping Denmark, which has now introduced relatively strict lockdown measures. With its very open economy (exports account for more than 50% of GDP), GDP growth will contract in 2020. To mitigate the shock, the government has launched major fiscal support measures, comprised notably of paying compensation for all or part of wages for a 3-month period. The central bank is ensuring DKK and EUR liquidity, after signing a swap arrangement with the ECB.

Eco Perspectives

Resilient growth
01/23/2020 • By Jean-Luc PROUTAT

In a less buoyant international environment, Denmark’s small open economy managed to maintain a rather dynamic pace. Thanks to its sector specialisation (pharmaceuticals, digital, etc.), the economy has been fairly resilient despite the downturn in the global manufacturing cycle. A labour market verging on full employment and accelerating wage growth have bolstered consumption, which is still one of the main growth engines. With the Danish krone (DKK) pegged to the euro, the central bank’s monetary policy will follow in line with ECB trends, and is bound to remain very accommodating. Fiscal policy will be geared towards the ecological targets of reducing greenhouse gas emissions.

Denmark is a constitutional monarchy with a representative parliamentary system. It is a member of the European Union (except its two autonomous constituent countries: the Faroe Islands and Greenland).

The Danish economy is a typical example of the Nordic economic model, combining high living standards and low-income inequality. In purchasing power parity, GDP per capita is more than 25% higher than the average of the European Union (EU). Tax rates are amongst the highest in the EU.

‘Flexicurity’, a portmanteau of flexibility and security, is the corner stone of the Danish economic model combining flexibility in the labour market, social security and an active labour market policy with rights and obligations for the unemployed. It necessitates close co-operation between government, employers and employees on economic policy – roughly two-thirds all workers are members of a trade union.

This high degree of inclusion and protection actually helped the economy to hold up during the Covid-19 crisis. The GDP contraction was limited (-2.1% in 2020, five time less than in Italy or Spain…) and followed by a strong rebound in 2021; the unemployment rate kept rather unchanged, at around 5.5%.

Even though Denmark has not joined the euro, the country does not have an independent monetary policy. The Danish National Bank maintains a narrow fluctuation band of +/- 2.25% around the euro central rate of DKK 7.46. As a result, Denmark’s monetary policy is linked to that of the European Central Bank (ECB).

Household indebtedness is one of the key weaknesses of the Danish economy. The household debt to income ratio in Denmark is the highest among OECD countries.