OECD Economic Outlook, Volume 2026 Issue 1

Denmark

GDP growth is projected to slow from 2.9% in 2025 to 2.5% in 2026 and 1.5% in 2027. Geopolitical tensions and the energy supply shock are expected to dampen foreign demand in key export sectors. Rising energy prices will generate inflationary pressures, but tax measures and moderate wage growth will help to contain inflation. High uncertainty will sustain elevated private savings. Greater international stability would boost confidence and domestic activity, while a further deterioration in global trade conditions would severely affect exports, particularly maritime transport.

The central bank is projected to temporarily raise policy rates in line with expected euro area tightening. Fiscal policy will be expansionary in 2026–27 due to higher defence spending and tax cuts. Available fiscal room should support growth‑enhancing investment in electricity infrastructure to reduce dependence on imported fossil fuels. Any additional spending should be calibrated to avoid exacerbating inflationary pressures.

GDP growth has lost momentum

After a significant slowdown at the end of 2025, quarterly GDP growth rebounded from 0.5% to 1.9% in the first quarter, boosted by pharmaceutical exports. In early 2026, business sentiment and capacity utilisation remained high, and industrial production continued to grow. Despite low and declining consumer confidence, retail sales have increased, except in liquid fuel filling stations. The labour market has eased further, with a modest decline in employment in February and a rise in registered unemployment, while wage growth in the private sector – at 3.6% – has remained robust. Inflation dropped in early 2026 due to tax cuts but picked up to 1.4% in April mainly driven by higher fuel prices. Core inflation was broadly stable at 1.6%.

Denmark

Source: OECD Economic Outlook 119 database; and Danmarks Statistik.

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Denmark: Demand, output and prices

Statlink

Relatively low fossil fuel consumption partly shields Denmark from energy price shocks. Reduced international trade flows and disruptions in the Strait of Hormuz have hit maritime transport, which accounts for around 20% of Denmark’s exports. Freight rates have surged, reflecting higher operational and insurance costs, while trade volumes have declined. Exports to the United States have fallen following the US tariff increase. However, the impact of tariffs on Denmark’s economy remains limited, as a large share of exports to the United States are produced locally and therefore exempt from tariffs. Revenues in the pharmaceutical sector are expected to come under pressure due to lower US prices, although sales volumes should continue to grow at a moderate pace.

Fiscal policy is set to support households purchasing power

A new coalition government is being formed. Broad cross‑party consensus points to continuity in fiscal policy, with a reduction in large surpluses while remaining compliant with fiscal rules. Spending on defence is expected to permanently rise to 3.5% of GDP from 2026 in line with NATO requirements. Indexation of social benefits to past wage growth, a food voucher for low-income households as well as cuts in personal income, electricity tax and excise duties will also contribute to the reduction in the budget surplus from 2.9% in 2025 to 0.2% in 2027 and support domestic demand via higher household incomes. Credit conditions and borrowing costs are projected to stabilise. Danmarks Nationalbank is expected to mirror ECB decisions to maintain the krone’s peg to the euro, including an expected 25 basis point increase in policy rates that is subsequently reversed in 2027.

Higher energy prices will dampen GDP growth

GDP growth is projected to moderate, reflecting a weaker global trade environment and slower growth in the pharmaceutical sector. Private consumption should remain resilient, supported by robust wage growth, rising social benefits, and tax cuts, which will partly offset the adverse impact of higher energy prices on purchasing power in 2026. Labour market easing should help keep wage growth aligned with collective agreements. Inflation is projected to fall below 2% by the end of 2027. Upside risks include stronger consumer confidence, a faster decline in precautionary savings, and additional fiscal measures to address energy costs. Defence and security spending could also provide greater stimulus if directed toward domestic infrastructure and recruitment. Downside risks stem from potentially stronger disruptions in shipping amid escalating geopolitical tensions.

Ambitious climate and energy policies can reduce exposure to external shocks

Exposure to energy price shocks can be reduced by accelerating the electrification of energy supply. Barriers to the infrastructure investment needed to deploy renewable capacity should be reduced, while support for biogas facilities should continue with strict cost control. While some fiscal easing is appropriate as global turbulence weighs on activity, further loosening could add to inflationary pressures. The fiscal room for manoeuvre has narrowed due to the rapid increase in defence spending from 2.3% of GDP in 2024 to 3.5% in 2026 and will continue to decline as the population ages. High uncertainty over future revenues underscores the need to preserve fiscal buffers and prioritise growth‑enhancing investment over untargeted spending and tax cuts. Continued progress in cutting red tape and simplifying regulation would help contain costs and foster sustained growth.