In 2024, GDP is expected to expand by 2.4%, thereby continuing the sound growth of recent years, with net exports as the main driver. Over 2025 and 2026 growth is projected to moderate while the main driver switches from net exports to domestic demand. The recovery in real wages is foreseen to benefit private consumption while investment is expected to be supported by lower interest rates and high-capacity utilisation. Employment is projected to grow marginally while the unemployment rate could stabilise at present levels. Public finances continue to be characterised by sizeable, albeit declining, general government surpluses projected over the entire forecast horizon.
| Indicators | 2024 | 2025 | 2026 |
|---|---|---|---|
| GDP growth (%, yoy) | 2,4 | 2,5 | 1,8 |
| Inflation (%, yoy) | 1,3 | 1,9 | 1,7 |
| Unemployment (%) | 5,8 | 5,8 | 5,8 |
| General government balance (% of GDP) | 2,3 | 1,5 | 0,9 |
| Gross public debt (% of GDP) | 31,0 | 29,3 | 28,3 |
| Current account balance (% of GDP) | 10,6 | 10,1 | 9,8 |
Continued robust economic activity
After negative growth in the first quarter of 2024, economic activity rebounded in the second quarter. Industrial output indicators suggest that the expansion is set to be maintained in the second half of 2024. In 2025 and 2026 the contribution from net exports to growth is expected to moderate while domestic demand takes over as the main growth driver, underpinned by lower interest rates and subdued inflation. Overall, real GDP is forecast to grow by 2.4% in 2024 and 2.5% in 2025 before moderating to a rate of 1.8% in 2026.
Exports are expected to remain robust, with pharmaceuticals and sea freight as important drivers. With the gradual reopening of gas extraction from the North Sea, Denmark is also projected to become again a net exporter of natural gas from 2025. Imports are projected to grow modestly, and broadly in step with the expansion in investment and exports. The current account balance surplus is expected to remain high over the forecast horizon with a surplus of around 10% of GDP.
Private consumption decreased in the first half of 2024 but is expected to slowly recover in the second half of the year before gaining additional momentum in 2025 and 2026 supported by rising real household disposable incomes. As consumption is expected to grow less than disposable income, the saving rate of households is set to increase and remain at a high level, with households remaining cautious about their economic situation.
Business investments are set to remain subdued in 2024 due to elevated interest rates. However, investment is projected to gain momentum in 2025 and 2026 as interest rates are projected to decline. The expected pick-up in house prices and lower interest rates are also set to support a rebound in housing investments.
Risks to Denmark’s growth outlook remain broadly balanced. The increased importance of the pharmaceutical sector makes headline figures sensitive to potential major swings in production and demand in this sector. In addition, any large changes in sea freight rates, as witnessed recently, could materially affect the current account.
The pressure eases on the labour market
Employment is expected to grow by 0.8% in 2024 and to continue expanding, albeit more modestly, over 2025 and 2026. The lower employment growth should contribute to alleviating labour market pressures, helped by the influx of workers from abroad. The past quarters have seen sizeable wage increases, in part linked to the outcome of the 2023 collective wage bargaining, which partly compensated earners for the previous inflation-induced real wage losses. In 2025 private labour market collective wage agreements are expected to be negotiated anew. The unemployment rate is set to increase from 5.1% in 2023 to 5.8% in 2024 and to stabilise at that level in 2025 and 2026 (1).
Inflation well below 2%
During 2024, the recorded monthly HICP inflation rate was significantly lower than the euro area average, mainly due to a faster pass-through of falling energy prices. Services inflation remains higher than the headline inflation but has also come down markedly through 2024. In 2024, inflation is expected to reach 1.3% on average before rising to 1.9% in 2025 and 1.7% the following year, based on the expectation of lower energy and food prices and less upward pressure on wages.
Strong government finances
2024 should see a government surplus of 2.3% of GDP, as expenditures are modest due to low unemployment, while revenues benefit from strong income growth. The fiscal stance remains expansionary. Looking ahead to 2025 the surplus is expected to decrease to 1.5% of GDP, in part reflecting the personal income tax reform as well as higher government consumption, including military expenditures.
The government surplus is forecast to decrease to 0.9% in 2026, mostly driven by the effects of an ageing population.
Government surpluses and denominator effects, although partly countered by stock-flow items, are expected to reduce gross debt to 31.0% of GDP in 2024, 29.3% in 2025 and 28.3% in 2026. The 2024 benchmark revision of national accounts figures implied an upward level shift by 4 pps. of the gross debt share of GDP, as a credit institution was reassigned to be included in the general government sector.