Denmark’s Economy Continues to Grow at Robust Pace

The Danish economy has continued to expand at a robust pace, driven by an exceptional surge in the pharmaceutical, while the rest of the economy has remained relatively subdued, aside from the maritime and information and communication technology industries, reflecting sluggish demand.

Meanwhile, with a decline in global energy prices and lacklustre domestic demand, inflationary pressures have largely dissipated in recent months, the International Monetary Fund (IMF) said on Friday.

The IMF Executive Board, which concluded 2024 Article IV Consultation with Denmark, said that growth was anticipated to gradually moderate in the near term but become more balanced across industries.

Output growth is projected to moderate from 2.5% in 2023 to 1.9% in 2024 and to 1.6% in 2025. The growth of pharmaceutical and maritime exports will taper off, while that of the rest of the economy will be bolstered by a pickup in external demand, improved consumer purchasing power, and further easing of financial conditions.

The IMF further said that the reopening of the Tyra natural gas will also contribute to growth in 2024 and 2025 and the inflation might temporarily edge up in the coming months due to the lagged effect of last year’s wage collective bargaining agreement before stabilizing at around 2% during the second half of 2025.

“The balance of risks to growth is skewed to the downside, with primary downside risks including a global slowdown, the possible escalation of the conflict in Gaza and Israel and Russia’s war in Ukraine, and deepening geo-economic fragmentation,” the IMF said.

The IMF commended Denmark’s remarkable resilience amidst multiple shocks, underpinned by sound policies, strong governance, and robust institutions. Noting a positive outlook with more balanced growth and stabilising inflation, IMF cautioned that risks—including from a global growth slowdown, geo-economic fragmentation, and demographic pressures—are tilted to the downside. To navigate these challenges and maintain Denmark’s welfare state, IMF emphasised the importance of continued sound macroeconomic management, supported by structural reforms to boost productivity, and lift long-term growth.

Easing Fiscal Stance

IMF also commended Denmark’s robust public finances and concurred that fiscal policy should consider cyclical conditions and long-term spending needs.

In this regard, the IMF’s Directors agreed that fiscal policy should avoid adding to capacity pressures in the short term. They also supported the slight easing of the fiscal stance for 2025 and beyond to accommodate the increases in costs related to health, climate, and defence.

To safeguard long-term fiscal sustainability, Directors encouraged the authorities to closely monitor fiscal pressures and take additional adjustment measures if necessary.

While noting that the financial system remains sound, Directors recommended that the authorities continue to closely monitor risks, in particular, related to the commercial real estate sector. They welcomed the recent tightening of macro-prudential policies and suggested considering additional borrower-based measures to address pockets of vulnerabilities.  Continued collaboration on the Nordic-wide bank stress tests would also be important. Directors encouraged the authorities to further strengthen AML/CFT and cybersecurity frameworks.