OECD Economic Surveys: Denmark 2026

Executive summary

Key messages

The Danish economy has been supported by the outstanding performance of large exporting firms operating abroad. Despite strong labour market outcomes, activity in the domestic economy has been weak. Denmark has high productivity and living standards with low inequality but still faces challenges, including raising productivity growth. Rising defence spending and growing demand for public services create long-term fiscal pressures.

• The planned medium-term reduction in the budget balance should be implemented within the fiscal framework. In the longer term, achieving efficiency gains and prioritising spending would help to preserve the Danish social model while maintaining low public debt.

• Ambitious policies are helping to reduce greenhouse gas emissions with strong reliance on pricing, but climate adaption policies need to be stepped up, including higher investment in risk-prevention measures.

• Denmark offers a family-friendly environment but improving public services to families, including the quality of childcare could contribute to reducing barriers to people having children.

• Housing efficiency, supply and affordability could be improved by further reforming property taxation, easing rent control and building regulations, and making better use of social housing.

Denmark’s economic outlook is strong but clouded by uncertainty

With a good business environment, a strong labour market and sound public finances, Denmark achieves high living standards and low inequality. However, the economy has run at two speeds since 2022, the domestic economy has only partly recovered from past economic shocks and rising trade tensions have clouded economic prospects.

The Danish economy has been resilient over the past five years, supported by robust export growth from a few large internationally active firms. Employment has reached record levels with improved participation of vulnerable groups in the labour market. The public finances have remained sound with low debt and a structural surplus. Policy efforts have focused on fostering labour supply further, meeting ambitious climate targets and reinforcing defence capacity.

However, the Danish economy has run at two speeds. Excluding the buoyant pharmaceutical industry, GDP declined in both 2022 and 2023 before slowly recovering in 2024 and in the first half of 2025 (Figure 1). Despite recovering real wages and strong employment growth, domestic demand has remained subdued amid higher interest rates, significant price corrections in the housing market and low households’ confidence. Business investment has weakened, reflecting higher borrowing costs, weak demand and uncertain economic prospects. After falling to 1.4% in 2024, inflation has modestly accelerated over 2025 to around 2%.

GDP growth is set to decelerate from 3.5% in 2024 to 2.4% in 2025 and 2% in 2026, but domestic demand will strengthen (Table 1). A resilient labour market, lower interest rates and tax cuts will sustain household demand, while high tariffs and trade policy uncertainty will weigh on exports and business investment. Shocks to core sectors such as pharmaceuticals and shipping could significantly weaken the economic outlook, while demand would be boosted if consumers were to reduce high savings rates.

Figure 1. The Danish economy has run at two speeds

Real GDP growth

Note: “Nordics” include Iceland, Finland, Norway, and Sweden. Real GDP excluding pharmaceutical sectors are based on value-added data provided by Statistics Denmark.

Source: OECD (2026), OECD Economic Outlook: Statistics and Projections (database); and Statistics Denmark.

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Table 1. Real GDP growth will decelerate, returning to potential

Annual % change unless specified	2023	2024	Projections
			2025	2026	2027
Gross domestic product (GDP)	0.6	3.5	2.4	2.0	1.8
Consumer price index	3.3	1.4	1.9	1.1	1.7
Core consumer price index	4.3	1.4	1.6	1.6	1.7
Unemployment rate (% of the labour force)	5.2	6.3	6.5	6.4	6.0
General government fiscal balance (% of GDP)	3.4	4.5	2.9	1.6	1.2

Source: OECD (2026), OECD Economic Outlook: Statistics and Projections (database).

Macroeconomic policies will support activity but need to manage rising spending pressures

Monetary and fiscal easing will sustain domestic demand recovery. Over the long term, improving spending efficiency and prioritising spending would help to manage population ageing, address climate change and meet national security requirements.

Monetary policy has eased in line with that in the euro area, consistent with the currency peg arrangement. The financial sector has remained resilient, despite higher interest rates, and credit growth has recovered at a moderate pace. Nevertheless, risks related to high household gross debt and high exposure to the commercial real estate sector warrant close monitoring.

Fiscal policy will bolster economic activity with cuts to the personal income tax, the electricity tax and additional spending on key areas, such as health, childcare and climate. The impact of planned large increases in defence spending on the economy will depend on its composition but will likely be limited, reducing the risk of public spending exerting excessive pressure on productive capacities. The large government surplus is projected to gradually narrow to the government medium-term target by 2030, but uncertainty on future tax revenue, notably the contribution of large multinational firms, remains high.

In the longer term, the government’s intention to increase spending on defence and security to 5% of GDP - in line with NATO commitments – combined with ageing and climate-related costs will place significant pressure on the public finances. While the fiscal room of manoeuvre is relatively large in the short term and public debt is low, long-term fiscal sustainability relies on future increases in old age employment and the containment of care and climate costs. While the fiscal framework is strong, an updated and strengthened long-term strategy should help to manage spending pressures and to ensure the debt-to-GDP ratio remains stable in the longer term.

There is room to achieve efficiency gains in public services. Savings can be achieved in healthcare, long-term care and public employment services, while maintaining strong safeguards on quality and accessibility. Digitalisation in the public sector is well advanced and holds potential for productivity gains, but barriers to the adoption of new technologies, including skills shortages, should be addressed.

The level of satisfaction of citizens vis-à-vis public institutions is relatively high and indicators point to low perceived corruption. However, the strategic framework for anti-corruption and public integrity could be improved and preventive measures against corruption risks need strengthening. Rules that ensure transparency and accountability in lobbying activities, regulate pre- and post-public employment and political finance should be made stricter to prevent conflicts of interest.

Efforts to reduce greenhouse gas emissions and raise climate resilience should continue

Denmark is on track to meet its 2030 climate target. At the forefront of climate mitigation policies, it is the first country to introduce carbon pricing in agriculture. By contrast, despite its vulnerability to flooding, storm surges and coastal erosion, it has yet to make adequate policy investments in climate resilience.

Continued policy efforts have put Denmark on track to meet its climate targets for 2030. Implementing carbon pricing in agriculture, continuing to develop carbon capture and storage capacity, and promoting electrification as planned will contribute to reaching climate neutrality by 2045. However, further efforts will be needed in the longer run, calling for further expanding emission pricing while maintaining a balanced policy mix with regulation and support to green innovation.

By contrast, Denmark lacks an updated and comprehensive strategy for climate change adaptation. Adaptation policy is largely decentralised to municipalities, with gaps and coordination challenges. The cost of climate-related damages, the effectiveness of existing risk prevention measures and the need for additional action have not or partially been evaluated at the national level, which impedes adequate prioritisation and planning. Reinforcing the framework for climate adaptation policy with identified priorities and targets, clear assignment of responsibilities and stronger oversight can help accelerate risk-prevention and reduce large damage costs (Figure 2).

Investment in climate change adaptation has been insufficient, despite high potential returns. While municipalities have plans to protect the population against climate risks, they face difficulties in funding and implementing necessary measures. State support has been ad hoc and caps on municipal investment spending and borrowing have slowed projects with high up-front costs. National schemes should be established for large-scale projects and predictable long-term funding for smaller local projects should be provided. Measures easing regulatory barriers to municipal investment in risk prevention should be accompanied by incentives for efficient implementation of adaptation plans.

Figure 2. Economic losses due to climate-related extreme events have been significant

Economic losses per capita due to weather- and climate-related extreme events, 1980 to 2024

Source: European Environment Agency (www.eea.europa.eu/en/analysis/indicators/economic-losses-from-climate-related).

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Better childcare could improve conditions for family formation

Like in other OECD countries, fertility has declined substantially in Denmark. Conditions for families are already relatively favourable, but many factors are at play in pushing down fertility. Improving the quality of childcare and reducing the motherhood penalty could reduce some of the barriers for people to realise their family plans.

Having long remained above the European average, fertility rates have significantly declined over the two past decades. While it reflects societal changes and shifts in preferences, a more pronounced decline in fertility in lower income households and persistent gaps between the actual and desired number of children suggest barriers to family formation.

Work life balance is good with a high share of working parents by international comparison, but penalties in pay and career progression linked to motherhood can discourage having children although this is less pronounced than in other countries. A more balanced sharing of care responsibilities within the family could help reshape gender norms and contribute to reducing the motherhood penalty. The length and the take up of parental leave for fathers have increased since 2023, after a reform, but still lag most other OECD countries.

There is room to improve family conditions by addressing remaining gaps in the family support system and services. The replacement rate of statutory parental benefits is relatively low, and the leave is shorter than in many OECD countries, but most parents are covered by more generous conditions under collective bargaining. Despite the extensive provision and take up of childcare services, the quality of services remains uneven across municipalities and staff turnover is relatively high, calling for strengthening monitoring of services and targeted improvement measures. Childcare can also be hard to access for some parents during non-standard working hours or on closure days. More flexibility in childcare provision could help parents balance family and working lives

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Tax and regulatory reforms can raise housing efficiency, supply and affordability

Danish housing policy aims at providing quality and affordable accommodation to all in an egalitarian way. Access to quality housing is good overall, but affordability in major cities has deteriorated and residential mobility has been low. This calls for a broad reform over time covering housing taxation, land use planning, rental regulation and social housing.

Housing affordability has become a growing issue in major Danish cities. People are less concerned about finding adequate housing than in most other OECD countries, but the share of housing-related spending in household consumption is high (Figure 3). Residential mobility has been relatively low, potentially reducing matching quality in the housing and labour markets.

Tax reform can help to lower land prices and reduce distortions in the tax system. Taxation of property dedicated to tax imputed rents should be gradually raised as its current low level is regressive, inflates house and land prices by unduly stimulating demand and can distort the allocation of housing. Alternatively, the tax deduction of interest expenses could be reduced.

Housing construction has not kept pace with population growth in some areas, especially in the capital municipalities, creating shortages and reducing affordability. Fragmentation of land use planning has impeded development projects and building restrictions lead to relatively low urban density. Relaxing regulations on floor area or building height, in areas where shortages are high and close to public transport, could foster housing supply by enabling greater densification.

Combined with reforms allowing for more responsive supply, easing rental regulation would improve the housing market. Strict rent control in housing built up to 1991 (around three quarters of private rental housing) discourages residential mobility. Indexing rent increases on wages would improve housing market efficiency by gradually reducing gaps between regulated and market rents. Further measures should be considered to speed up the transition of regulated rents to market levels. To limit affordability issues, rental allowances could be partly redirected to affected low-income households.

Despite accounting for more than 20% of the housing stock, access to social housing is characterised by long waiting times. Social housing is of good quality and aims at ensuring social diversity and mixed neighbourhoods by being open to all. Although they represent a small proportion of residents, higher-income households still have access to social housing at below-market rates. Currently, social tenants on higher incomes or whose circumstances improve continue to enjoy the same conditions as those on lower incomes, providing few incentives to ensure that social housing is available for those with greater needs. The government plans to relax cost cap legislation on social housing construction to give more room to expand capacity.

Figure 3. The share of housing-related spending in household consumption is high

Decomposition of housing-related spending, 2024 or latest available year

Note: OECD calculations based on OECD National Accounts Database. The OECD average only includes countries with available data for each category.

Source: OECD Affordable Housing Database, HC1.1 Housing related expenditure of households.

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MAIN FINDINGS	KEY RECOMMENDATIONS
Addressing key risks to macroeconomic stability, fiscal sustainability and public integrity
GDP growth is projected to slow and domestic activity to strengthen gradually. Fiscal policy will ease, remaining in line with fiscal rules.	Implement existing fiscal plans for 2026, reducing government surpluses within fiscal rules.
The government budget balance is in surplus, public debt is relatively low and the fiscal framework is strong, but there are fiscal pressures from ageing, defence, climate change and social spending.	Maintain and consider strengthening the long-term fiscal strategy to manage future spending pressures accounting for defence needs, climate costs and demand for welfare services.
Spending on healthcare and long-term care is high and will rise fast with population ageing. The 2024 reforms aim at strengthening prevention and reducing administrative costs.	Achieve efficiency gains and cost savings in health and long-term care by strengthening prevention and reducing administrative costs as planned, and by managing the level and targeting of provision.
Denmark is lagging other Nordic countries in developing prevention against public integrity risks. There are few safeguards against undue influence on policy making.	Establish a risk-based public integrity framework with stronger safeguards against conflict-of-interest and undue influence in lobbying and political finance.
Reaching climate neutrality and strengthening climate resilience
Denmark is on track to achieve its 2030 climate target, but further efforts are needed to reach climate neutrality by 2045. It has made substantial progress to increase the scale and scope of carbon pricing, but discrepancies across sectors persist.	Maintain a balanced climate policy mix, combining taxation with regulation and green innovation support. Phase out rebates in carbon pricing based on regular re-assessment of leakage risks and available abatement technologies.
Denmark lacks a comprehensive and updated national strategy for climate change adaptation. Adaptation policy is decentralised creating inefficiencies and gaps.	Develop a more ambitious Climate Change Adaptation Strategy and actions plans, defining priorities for policy actions, measurable targets, and assigning responsibilities.
Local adaptation plans are not well coordinated, and monitoring of risk prevention measures has been uneven.	Establish a coordination, oversight and monitoring unit for local adaptation plans at the national level.
The lack of financial resources and regulatory restrictions on municipal investments have impeded the implementation of local adaptation plans.	Increase the availability of finance for adaptation measures by further increasing central government financial support and easing investment and borrowing constraints of municipalities for these projects.
Addressing barriers to family formation
Quality of early childhood education and care varies widely across institutions. The 2026 budget allocates funds to increase childcare staffing and envisages to introduce regular 4-year quality monitoring.	Improve the quality monitoring system for childcare services and ensure that identified issues are addressed through targeted improvement measures.
Improving housing efficiency, supply and affordability
Tax incentives for home buyers through low taxation of property values and generous mortgage interest relief unduly increase housing demand and prices.	Gradually raise the taxation of property values to a more appropriate level. If this cannot be achieved, consider reducing interest relief including on mortgages .
Widespread rent controls lead to rationing, mismatch and lock-in effects, which reduce geographic mobility.	Index rent increases on aggregate wage growth to help narrow the differential with market rents. Consider a deeper reform to align regulated rents more closely to market levels accompanied by targeted increases in housing allowances.
Housing supply is restrained, especially in cities. Building restrictions in city areas undercut the densification of neighbourhoods well-served with public transport.	Relax building restrictions in priority areas close to transport links to increase density.