Calm waters amid high geopolitical uncertainty

The Danish economy has experienced robust growth in recent years, largely driven by the pharmaceutical sector, which is increasingly contributing to overall economic performance. This industry has propelled Danish industrial production and exports to new heights, accounting for nearly a quarter of total turnover in the industrial sector in 2023. Additionally, consumer spending is gaining traction due to positive real wage growth and a tight labor market, enhancing household purchasing power significantly. In 2025, we anticipate a growth rate of +1.5%, followed by an increase to +2.0% in 2026. This ongoing progress in the Danish economy is primarily attributed to the expected decline in interest rates, which will stimulate demand both within Denmark and in major export markets. Furthermore, significant real wage increases are expected to drive higher household consumption.

The trend in Danish consumer prices has fluctuated a lot in recent years but inflationary pressures subsided throughout 2023, settling at +3.3%. While price increases for energy and goods have moderated, inflation in the services sector remains elevated due to wage pressures. The annual average inflation rate is projected to rise to 2.0% in 2025 and maintain that level into 2026. Labor market constraints are easing as increased demand for workers has been met by an influx of migrant labor and higher retirement ages. Additionally, collective wage bargaining, coupled with significantly lower inflation, has allowed households to recover lost real wage levels, although wage growth is projected to slow down moving forward.

Denmark boasts one of the most favorable business environments globally, characterized by a competitive regulatory framework. The country features low barriers to entry, facilitating smooth cross-border trade and benefiting from a supportive fiscal climate. Additionally, Denmark is a leader in technological innovation and is committed to pioneering green investment policies.

The Danish political system is often praised for its transparency and efficiency. With one of the lowest degrees of corruption and a clear separation of powers, it is trusted by the population. The landscape is divided between the social democrats led by Mette Frederiksen, currently ruling in a bipartisan government with the Liberals and the Moderates, and the center-right. With generous and transparent welfare programs, a dynamic economy and a harsh stance towards immigration, the right has almost no territory left to grapple with. The letter point could, however, prove sensitive as the discrimination experienced by minorities could stoke social unrest.