OECD Economic Outlook, Volume 2025 Issue 2

Denmark

GDP growth is projected to moderate from 2.4% in 2025 to 1.8% in 2027. Weakening growth prospects in the pharmaceutical sector and slower global trade growth will weigh on the business sector. A resilient labour market, fiscal policy easing and low inflation will sustain household demand. Cuts in indirect taxes will help to reduce inflation from 1.9% in 2025 to 1.1% in 2026 before it returns closer to 2% in 2027. The main risks relate to developments in key export activities and a faster-than-expected unwinding of the elevated level of household savings.

The central bank is projected to keep policy rates unchanged in line with the ECB. Fiscal policy will shift to an expansionary stance in 2025-26 consistent with the government’s objective of reducing the budget surplus within the fiscal rules. A gradual fiscal easing is appropriate given low public debt and the need to fund higher defence spending. Policies supporting business investment and reductions in regulatory costs would help diversify the drivers of growth and reduce exposure to sector-specific shocks.

GDP growth has been volatile

After a drop in the first quarter of this year, GDP growth has rebounded in the following two quarters, reflecting volatility in the pharmaceutical industry. Industrial production has picked up and business sentiment has remained close to its historical average over the third quarter, but a growing share of firms have reported insufficient demand. Rising household purchasing power has sustained private consumption and the housing market recovery, but low consumer confidence kept precautionary savings high. Employment and wage growth have moderated but remain robust, and unemployment has been broadly stable since the beginning of the year. Inflation has strengthened from around 1.7% during the first half of the year to over 2% since July due to rising rents and food prices.

Denmark

1. Maastricht definition.

Source: OECD Economic Outlook 118 database.

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Denmark: Demand, output and prices

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Exports in sectors exposed to rising tariffs strengthened in the first half of the year, but Danish exporters expect trade policy changes to dampen future prospects. Weakening global trade is projected to hit maritime transport. Growth prospects in the pharmaceutical sector have been revised downward and layoffs announced due to intensifying competition in the obesity drug market and pricing pressures. US tariffs should have a limited impact as a large share of pharmaceuticals exported to the United States are produced locally under contract manufacturing. In line with NATO commitments, Denmark intends to raise defence spending above 3% of GDP by 2026.

Fiscal policy will support domestic demand

Following the ECB, Danmarks Nationalbank kept its policy rates unchanged in September 2025. It is expected to continue to follow ECB policy to maintain the peg of the Danish krone to the euro. Fiscal policy is projected to ease substantially while remaining in line with fiscal rules. Higher spending on defence (of around 1% of GDP), substantial increases in grants to municipalities, indexation of social benefits to past wage growth, as well as tax cuts on personal income, electricity and specific food items will contribute to reducing the budget surplus from 4.5% of GDP in 2024 to a projected 1.2% in 2027. The high import content of defence-related spending is expected to limit the stimulus impact of the expansionary fiscal policy in 2025 and 2026 on domestic activity, while the fiscal stance is projected to be broadly neutral in 2027.

A recovery in domestic demand will partly offset weaker exports

Export growth is projected to moderate due to weaker growth prospects in the pharmaceutical industry and slowing foreign demand. Slower but positive employment and wage growth, tax cuts and lower inflation should support a recovery in private consumption, while fiscal policy easing will boost public expenditure. Planned cuts in electricity tax and excise duties on selected food items will help reduce inflation to 1.1% in 2026 from 1.9% in 2025. Wage moderation will keep inflation below 2% across 2027. Geopolitical tensions and related high uncertainty will continue to weigh on business investment and keep precautionary savings above their historical average. Positive risks to the outlook include stronger consumer confidence and faster decline in the savings rate. Further tariffs or regulatory barriers on pharmaceuticals or maritime services could hit GDP and tax revenues.

Fiscal and regulatory policies should sustain business investment

With robust public finances and a business-friendly regulatory environment, Denmark is well positioned to manage economic turbulence. Fiscal space will help to address pressing spending needs on defence, while pursuing other policy objectives, such as achieving the green and digital transitions. In the longer term, while the fiscal framework is strong, efficiency gains and spending prioritisation would help to address spending pressures from population ageing and climate change as fiscal space diminishes. Regulatory requirements have generated significant costs to businesses and have delayed investments, notably in network infrastructure. Further simplifying and streamlining procedures, while ensuring regulatory assessment better keeps up with structural transformations of the economy, can support business investment, help diversify growth drivers and reduce economic risks.