Positive reform momentum is yet to materialize

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General Information

GDP USD341.952bn (World ranking 34, World Bank 2014)
Population 5.64 million (World ranking 112, World Bank 2014)
Form of state Constitutional Monarchy
Head of government Lars Lokke Rasmussen (Liberal Party Venstre)
Next elections 2019, legislative

Country Rating AA1note-circle-low-risk


  • Strong banking sector
  • Strong business environment
  • Diversified export sector
  • Healthy public finances 
  • High institutional effectiveness 
  • Modest government debt burden


  • Excessive household debt
  • Small and open economy
  • Loss of competitiveness, namely due to high tax burden

Economic Overview

Moderate economic growth in 2016 and 2017

Denmark’s economy is back on track, although to a less dynamic extent than other Scandinavian neighbors such as Sweden or Norway. In Q1 and Q2 2016, the Danish economy expanded by +0.7% q/q and +0.5% q/q respectively, thanks to positive net exports (+0.2pp in Q1 and +0.8pp in Q2) and supportive public spending. Consumer spending has been dynamic in Q1 (+0.5% q/q) before slowing down in Q2 (+0.2% q/q). However, the fall in the unemployment rate (6.2% in Q2), the return to positive growth in real wages (annual average of 1%), the low interest rates and rising house prices (average annual rise of above +4%) should support consumer spending going forward. Capacity utilization rate rose above its historical average in Q3 2016 (at 81%), which suggests a pick-up in firms appetite for investment. 

Risks still stem from the high debt burden of non-financial companies (240% of total income for net NFC debt) and falling profitability. Turnover growth is recovering and a pick-up in inflation should support firms’ pricing power. Business insolvencies are expected to fall by -7% in 2017. 

Fiscal stimulus in the pipeline: DK2025

Healthy public finances, especially compared to the rest of the EU, provide room for fiscal stimulus. Prime Minister Lars Lokke Rasmussen has initiated negotiations within his ruling coalition to adopt a 10-year economic plan that should boost the economy up until 2025. The Liberal party proposes to (i) cut income tax and the top marginal tax rate to 10% from 15%, (ii) increase public spending by 0.5% per year to DKK22bn in 2025, with a focus on care for the elderly, education and security; (iii) raise the retirement age to 67.5 years in 2025, up from 67, and to 68 years in 2030. 

The coalition partner, the Conservative’s People Party, pushes for more spending on pensions. Should these negotiations be successful, the plan could boost the economy by DKK65bn (3.2% of GDP). Failure to come to a compromise could lead to a break-up of the ruling coalition and elections by the end of 2016.

Brexit remains a downside risk

The UK plays an important role for all four Nordic countries as it stands among the TOP 5 export markets for the region. Norway and Denmark are exposed more than others. The UK is the first export market for Norway (21% of total exports) mainly through the oil market. The British economy is the 3rd biggest destination for Danish exports (7% of total exports). 

GBP depreciation could translate into lower export growth for Denmark. Brexit’s overall impact could reach from –DKK2.7bn to –DKK3.5bn depending on the UK’s trade relationship with the EU post exit (see Figure 3). Subdued demand in the UK due to uncertainty along with the currency’s depreciation can impact the most exposed sectors: agri-food, energy, and machinery.

Last review: 09/27/2016