The economic context of Denmark

Economic Indicators

Being a small country with an open economy and a structural balance of payments surplus, Denmark - although prosperous - is highly dependent on foreign trade. Nevertheless, the country proved relatively resilient to the pandemic-related challenges and was only marginally affected by the effects of the Russian invasion of Ukraine. After expanding by 2.5% in 2023, growth was estimated at 1.9% in 2024 by the IMF (2.4% according to the EU Commission), with net exports as the main driver. For 2025 and 2026, a reduced contribution from the pharmaceutical sector is anticipated as it approaches peak production levels. In contrast, domestic demand is expected to play a larger role, driven by lower interest rates, rising real wages, improved consumer confidence, and more relaxed fiscal policy. Growth is projected at 2.5% in 2025 and 1.8% in 2026 as per the EU Commission, with significant contributions from the Tyra gas field in 2025. Key short-term risks include geopolitical tensions and weaker global demand, while long-term GDP growth will face challenges from unfavourable demographics.

The country’s public accounts are quite healthy, with one of the lowest debt-to-GDP ratios in Europe: although the measures taken by the government to address the pandemic led to an increase in recent years, the ratio stood at around 28.2% in 2024 and is expected to follow a downward trend (27.3% in 2025 and 27.1% in 2026 – IMF) thanks to continued primary surpluses and nominal GDP growth. In 2024, the government recorded a surplus of 2.3% of GDP, as modest expenditures were supported by low unemployment and strong income growth. The fiscal stance remained expansionary. Looking ahead to 2025, the surplus is projected to decline to 1.5% of GDP, partly due to personal income tax reform and increased government spending, including military expenditures. By 2026, the government surplus is expected to shrink further to 0.9%, primarily driven by the impact of an ageing population (data EU Commission). In 2024, the recorded monthly HICP inflation rate was significantly lower than the euro area average, mainly due to a faster pass-through of falling energy prices. Services inflation remained higher than the headline inflation but also decreased markedly throughout the year. Inflation for 2024 was expected to average 1.3%, with a rise to 1.9% in 2025 and 1.7% the following year, driven by expectations of lower energy and food prices and reduced upward pressure on wages (EU Commission).

The Danish economy is characterized by an equitable distribution of income and extensive government welfare measures, with one of the highest GDP per capita in the world (USD 71,978 PPP in 2025, IMF). Employment grew by an estimated 0.8% in 2024 and is expected to continue expanding, though more modestly, in 2025 and 2026. The slower employment growth helped alleviate labour market pressures, aided by an influx of workers from abroad. Last year saw sizeable wage increases, partly due to the outcome of the 2023 collective wage bargaining, which helped compensate earners for the real wage losses caused by inflation. In 2025, new private labour market collective wage agreements are expected to be negotiated. Overall, the unemployment rate rose from 5.1% in 2023 to 5.8% in 2024 and is anticipated to stabilise at that level in 2025 and 2026.

Main Sectors of Industry

The agricultural sector accounts for only 0.8% of the GDP and employs 2% of the active population (World Bank, latest data available). Approximately 60% of the Danish land is used for agriculture, and there are more than 50,000 farmers in the country, which is a major exporter of agricultural products (meat, fish, and dairy, among others). Denmark produces enough food to feed 17 million people, three times its population. Nearly 90% of the country's agricultural revenue comes from livestock production. The main crops in Denmark are small grains, mainly wheat and barley, covering more than half of the agricultural area. The organic market in Denmark is proportionally the biggest in the world, with organic food making up 12.8% of the total retail food market (Statistics Denmark). According to data from Statistics Denmark, the gross domestic product at factor cost for agriculture stood at DKK 92.719 million in 2023 (-10.1% year-on-year), with a total of 6,294 full-time farms active in the country.

Industry employs around 19% of the active population and contributes 23.5% of GDP. The major activity sectors in Denmark are the chemical, pharmaceutical, and biotechnology industries, with niche industries in renewable energy and biotechnology. Over the past four years, pharmaceutical production in Denmark has nearly tripled, driving industrial growth at a significantly faster rate than in neighbouring countries. As a result, the pharmaceutical sector has accounted for more than half of Denmark's economic growth in recent years. The industry is also a key contributor to the current account surplus, which exceeded DKK 400 billion over the past year, equivalent to approximately 14% of GDP. Denmark has limited natural resources, which has historically slowed the development of heavy industry. However, the country has maintained energy independence through North Sea oil and gas reserves, although it is now transitioning to renewable energy. Uranium mining was authorized in the autonomous Danish territory of Greenland in 2013, but subsequent political shifts have imposed stricter environmental regulations, limiting large-scale extraction. Denmark is the world's leading manufacturer of wind turbines and exports the vast majority of its production. According to the latest data from the World Bank, manufacturing accounts for 16% of the country’s GDP.

The services sector contributes nearly three-quarters of GDP (64.4%) and employs the largest share of the population (79%). Denmark has a strong banking sector, characterised by a high degree of concentration: it comprises 56 banks and 6 mortgage banks; with domestic banks owning more than 70% of the total assets, and three banks controlling 50% of total assets. Overall, mortgage loans for companies and households constitute almost 80% of total lending in Denmark (European Banking Federation). The tourism sector is becoming a growing source of income for the country: according to the latest figures by Statistics Denmark, the number of overnight stays stood at 65 million in 2024, of which 34 million were related to foreign tourists. Trade and transport services are also important for the country’s economy (Denmark is the world’s second-largest shipping operator - Coface).

 

Breakdown of Economic Activity By Sector	Agriculture	Industry	Services
Employment By Sector (in % of Total Employment)	2.0	19.3	78.7
Value Added (in % of GDP)	0.8	23.5	64.4
Value Added (Annual % Change)	-6.3	10.4	0.6

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Indicator of Economic Freedom

Definition

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:

77,8/100

World Rank:

10

Regional Rank:

5

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

Business environment ranking

Definition

Definition:

The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

Score:

8.32/10

World Rank:

6/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2021-2025

 

Sources of General Economic Information

Ministries

Ministry of Industry, Business and Financial Affairs
Ministry of Finance
Ministry of Environment

Statistical Office

Statistics Denmark

Central Bank

Danish National Bank

Stock Exchange

Copenhagen Stock Exchange

Economic Portals

The Economist