The Danish economy is forecast to withstand current geopolitical uncertainties and expand further in 2025 and 2026, driven by industrial production in combination with renewed North Sea energy extraction. Unemployment is set to rise marginally from present levels. Public finances are robust, with continued, albeit declining, general government surpluses in both 2025 and 2026.
| Indicators | 2024 | 2025 | 2026 |
|---|---|---|---|
| GDP growth (%, yoy) | 3,7 | 3,6 | 2,0 |
| Inflation (%, yoy) | 1,3 | 1,6 | 1,5 |
| Unemployment (%) | 6,2 | 6,2 | 6,3 |
| General government balance (% of GDP) | 4,5 | 1,5 | 0,6 |
| Gross public debt (% of GDP) | 31,1 | 29,7 | 29,4 |
| Current account balance (% of GDP) | 13,0 | 13,7 | 13,5 |
Economic expansion driven by exports as domestic demand picks up too
The Danish economy enjoys strong industrial production expansion, driven in part by the pharmaceutical sector. Net exports have been the main driver behind growth thanks to strong exports of pharmaceutical and other industrial production. Expansion in the economy was particularly strong in the last quarter of 2024, resulting in an annual growth rate of 3.7% for the year. The carry-over for 2025 is of more than 2% annual growth. Furthermore, the full reopening of gas extraction from the North Sea in early 2025 should add to the economic expansion, as well as making Denmark more than self-sufficient with natural gas. Notwithstanding the current geopolitical and trade uncertainties, Denmark enjoys a still positive growth outlook for 2025. Private and public consumption as well as investments, helped by lower interest rates, increasingly take over as the main factors behind economic growth. Real wage increases are boosting household real incomes, which are projected to translate into higher consumption for both this year and next notwithstanding current weak consumer confidence. Overall, real GDP is forecast to grow by 3.6% in 2025, easing to a rate of 2.0% in 2026.
Labour market pressures easing
Employment is expected to rise modestly over the forecast horizon, as opposed to the markedly stronger increases in recent years. As the labour force continues to expand with higher participation of older workers and international labour, the number of unemployed persons is projected to increase slightly in both 2025 and 2026 (1). The unemployment rate is set to increase from 6.2% in 2024 and 2025 to 6.3% in 2026. While still prevalent in some key sectors, notably ICT, healthcare and construction, labour market bottlenecks appear to be easing. Both nominal and real wages are expected to continue growing in 2025 and 2026 but based on concluded collective agreements the increases are expected to be lower than in the previous two years.
Uncertain outlook for exports
Foreign trade is likely to be marked by ongoing geopolitical and customs tariff uncertainties. Still, the forecast is for continued strong growth in exports and imports of goods in 2025, while the trade in goods could decelerate somewhat in 2026. Trade in services is projected to be more subdued whin both years as lower global trade growth impacts the shipping industry. In 2024 and preceding years, Danish growth was predominantly driven by net exports, but this is expected to change over the forecast period, as the growth contribution from net exports dissipates towards 2026. Increased tariffs and increasing fragmentation of global trade are key risks to the outlook as it may result in more difficult sales opportunities for Danish export companies, potentially leading to a decline in exports. In particular, the increased importance of the pharmaceutical sector means that any major swings in production and demand within this sector would have economy-wide implications. Volatility in sea freight rates, as witnessed over the past years, could also impact the foreign trade balance and the balance of payments significantly.
Inflation to remain below 2%
Headline inflation has been increasing since a low point reached in spring 2024, driven by higher energy and food inflation. In contrast, non-energy industrial goods inflation and service inflation have decreased markedly over the year. Looking ahead, headline inflation is set to rise from 1.3% in 2024 to 1.6% in 2025 and 1.5% in 2026, as falling commodity prices, low non-energy industrial goods inflation and slowing wage growth contribute to a stable inflation outlook.
Strong government finances
Denmark recorded a general government surplus of 4.5% of GDP in 2024, driven by higher tax revenues due to strong personal income tax, business tax and unexpectedly high pension yield tax revenues. The forecast is for continued, albeit declining, general government surpluses in 2025 of 1.5% of GDP and 2026 of 0.6%, as government expenditures outgrow increases in revenues. This reflects inter alia plans for a continued marked increase in military expenditures. This includes a 2025-2026 “Acceleration Fund” for military equipment totalling up to 1.6% of GDP, of which a significant share is expected to materialise in 2025-2026 as well as continued donations to Ukraine. Slightly higher unemployment should also contribute to higher social expenditures. Continued government surpluses and significant denominator effects, only partly countered by stock-flow effects, are expected to bring the gross debt level to 29.7% of GDP in 2025 and further down to 29.4% in 2026.