Denmark: Economic and Political Overview
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Being a small country with an open economy and a structural balance of payments surplus, Denmark– although prosperous - is highly dependent on foreign trade, hence the country was severely affected immediately after the outbreak of the COVID-19 pandemic. Nevertheless, Denmark proved relatively resilient to the pandemic-related challenges, growing at a strong pace in 2021 (4.9%) and 2022 (2.6% - IMF), driven mainly by net exports and the build-up of inventories. High energy prices and inflation, decreasing real disposable income, higher interest rates and geopolitical uncertainty amid the Russia-Ukraine conflict contributed to a deceleration in the second half of the year. Such a trend is expected to continue in 2023, with the IMF forecasting a moderate growth of 0.6%. For 2024, GDP is expected to grow 1.9% amid lower inflationary pressures.
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 2022 the debt burden stood at 31.8% of GDP and should decline further to 31.4% in 2024 (IMF). Thanks to the phasing-out of emergency measures and strong revenue growth Denmark recorded a budget surplus of 1.8% in 2022; however, growth in expenditure - mostly for the public sector wage bill - is expected to outpace that of revenue, leading to a reduction in the budget surplus (0.5% in 2023 and 0.4% in 2024 according to the EU Commission). Consumer prices have accelerated sharply in 2022, fuelled by an upswing in energy, raw materials and food prices. Overall, inflation reached 7.2% in 2022. Nevertheless, energy price inflation is forecast to turn negative from mid-2023 onwards, contributing to a deceleration of headline inflation to 3.8% this year and 2.4% in 2024.
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 69,845 PPP in 2022, IMF). The unemployment rate stood at 5.2% in 2022, well below its pre-crisis level. Despite that, several sectors are reporting labour shortages and high employment levels: in fact, Denmark experiences endemic labour shortages, which are projected to ease to a certain degree due to the growing labour force driven by a rise in the number of workers from other EU countries and the gradual increase in the retirement age. The IMF forecasts a stable unemployment rate over the forecast horizon (at 5.3% this year and 5.1% in 2024).
| Main Indicators | 2020 | 2021 | 2022 (E) | 2023 (E) | 2024 (E) |
| GDP (billions USD) | 355.22 | 398.30 | 390.68 | 405.63 | 419.89 |
| GDP (Constant Prices, Annual % Change) | -2.0 | 4.9 | 3.6 | 0.0 | 1.0 |
| GDP per Capita (USD) | 61,006 | 68,202 | 66,516 | 68,827 | 71,019 |
| General Government Balance (in % of GDP) | 0.3 | -0.2 | 0.4 | 0.5 | 0.3 |
| General Government Gross Debt (in % of GDP) | 42.2 | 36.6 | 29.7 | 30.4 | 30.3 |
| Inflation Rate (%) | 0.3 | 1.9 | 8.5 | 4.8 | 2.8 |
| Unemployment Rate (% of the Labour Force) | 5.6 | 5.1 | 4.5 | 5.1 | 5.1 |
| Current Account (billions USD) | 27.99 | 35.97 | 50.08 | 38.34 | 32.36 |
| Current Account (in % of GDP) | 7.9 | 9.0 | 12.8 | 9.5 | 7.7 |
Source: IMF – World Economic Outlook Database, October 2021
The agricultural sector only accounts for 0.9% 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 86.273 million in 2021 (+4.3% compared to the pre-COVID level).
Industry employs around 19% of the active population and contributes 19.3% of GDP. The major activity sectors are the chemical, pharmaceutical and biotechnology industries, with niche industries in renewable energy and biotechnology. Denmark has limited natural resources, a fact that slows down the development of its heavy industry. However, the country has enough oil and gas reserves to ensure its energy independence. Uranium mining has been authorised to begin in the autonomous Danish territory of Greenland. 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 12% of the country’s GDP.
The services sector contributes three-quarters of GDP (66.7%) and employs the largest share of the population (79%). Denmark has a strong banking sector, characterised by a high degree of concentration: domestic banks own more than 85% of the total assets, and three banks control 50% of total assets. The tourism sector is becoming a growing source of income for the country: although it has been severely hit by the COVID-19 pandemic, in 2021 the number of arrivals exceeded that of 2019. 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) | 2.2 | 18.5 | 79.2 |
| Value Added (in % of GDP) | 0.9 | 19.3 | 66.7 |
| Value Added (Annual % Change) | -15.3 | 5.2 | 5.3 |
Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.
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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.}}
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Source: Index of Economic Freedom, Heritage Foundation
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Source: The Economist Intelligence Unit - Business Environment Rankings 2021-2025
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Latest Update: September 2023
