Perspectives

Resilient growth

st  
24  
EcoPerspectives // 1 quarter 2020  
economic-research.bnpparibas.com  
Denmark  
Resilient growth  
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.  
Estimated at 1.8% in 2019, Denmark’s GDP growth remains  
1
- Growth and inflation  
relatively robust so far, both with regard to its long-term potential  
estimated at 1.6% according to the OECD) and to the European  
GDP Growth (%)  
Inflation (%)  
(
Forecast  
average (1.5%). In 2020, growth is expected to slow somewhat, and  
our forecast of 1.5% places it among the leading EU countries.  
Forecast  
2
.4  
Buoyant consumption  
2.0  
1
.8  
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  
1
.4  
1.4  
1
.4  
1.1  
0
.9  
0.7  
0.7  
17  
18  
19  
20  
21  
17  
18  
19  
20  
21  
Source: National accounts, BNP Paribas  
1
about to disappear . 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.  
neutral alternative technologies. The budget also calls for increasing  
spending on public services, including healthcare and education.  
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  
1
6-64 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  
2
targets for reducing greenhouse gas emissions , 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-  
1
The UK is Denmark’s fourth biggest trading partner.  
Down 70% by 2030 (from the 1990 level)  
2
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