Denmark: Economic and Political Overview
In this page: Economic Outline | Political Outline | COVID-19 Country Response
For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.
Being a small country with an open economy and a structural balance of payments surplus, Denmark– although prosperous - is highly dependent on foreign trade, hence the country was severely affected immediately after the outbreak of the COVID-19 pandemic. Nevertheless, Denmark proved relatively resilient to the pandemic-related challenges, growing at a strong pace in 2021 (4.9%) and 2022 (2.6% - IMF), driven mainly by net exports and the build-up of inventories. High energy prices and inflation, decreasing real disposable income, higher interest rates and geopolitical uncertainty amid the Russia-Ukraine conflict contributed to a deceleration in the second half of the year. Such a trend is expected to continue in 2023, with the IMF forecasting a moderate growth of 0.6%. For 2024, GDP is expected to grow 1.9% amid lower inflationary pressures.
The country’s public accounts are quite healthy, with one of the lowest debt-to-GDP ratios in Europe: although the measures taken by the government to address the pandemic led to an increase, in 2022 the debt burden stood at 31.8% of GDP and should decline further to 31.4% in 2024 (IMF). Thanks to the phasing-out of emergency measures and strong revenue growth Denmark recorded a budget surplus of 1.8% in 2022; however, growth in expenditure - mostly for the public sector wage bill - is expected to outpace that of revenue, leading to a reduction in the budget surplus (0.5% in 2023 and 0.4% in 2024 according to the EU Commission). Consumer prices have accelerated sharply in 2022, fuelled by an upswing in energy, raw materials and food prices. Overall, inflation reached 7.2% in 2022. Nevertheless, energy price inflation is forecast to turn negative from mid-2023 onwards, contributing to a deceleration of headline inflation to 3.8% this year and 2.4% in 2024.
The Danish economy is characterized by an equitable distribution of income and extensive government welfare measures, with one of the highest GDP per capita in the world (USD 69,845 PPP in 2022, IMF). The unemployment rate stood at 5.2% in 2022, well below its pre-crisis level. Despite that, several sectors are reporting labour shortages and high employment levels: in fact, Denmark experiences endemic labour shortages, which are projected to ease to a certain degree due to the growing labour force driven by a rise in the number of workers from other EU countries and the gradual increase in the retirement age. The IMF forecasts a stable unemployment rate over the forecast horizon (at 5.3% this year and 5.1% in 2024).
| Main Indicators | 2020 | 2021 | 2022 (E) | 2023 (E) | 2024 (E) |
|---|---|---|---|---|---|
| GDP (billions USD) | 355.22 | 398.30 | 390.68 | 405.63 | 419.89 |
| GDP (Constant Prices, Annual % Change) | -2.0 | 4.9 | 3.6 | 0.0 | 1.0 |
| GDP per Capita (USD) | 61,006 | 68,202 | 66,516 | 68,827 | 71,019 |
| General Government Balance (in % of GDP) | 0.3 | -0.2 | 0.4 | 0.5 | 0.3 |
| General Government Gross Debt (in % of GDP) | 42.2 | 36.6 | 29.7 | 30.4 | 30.3 |
| Inflation Rate (%) | 0.3 | 1.9 | 8.5 | 4.8 | 2.8 |
| Unemployment Rate (% of the Labour Force) | 5.6 | 5.1 | 4.5 | 5.1 | 5.1 |
| Current Account (billions USD) | 27.99 | 35.97 | 50.08 | 38.34 | 32.36 |
| Current Account (in % of GDP) | 7.9 | 9.0 | 12.8 | 9.5 | 7.7 |
Source: IMF – World Economic Outlook Database, Latest data available.
Note : (E) Estimated data
The agricultural sector only accounts for 0.9% of the GDP and employs 2% of the active population (World Bank, latest data available). Approximately 60% of the Danish land is used for agriculture, and there are more than 50,000 farmers in the country, which is a major exporter of agricultural products (meat, fish, and dairy, among others). Denmark produces enough food to feed 17 million people, three times its population. Nearly 90% of the country's agricultural revenue comes from livestock production. The main crops in Denmark are small grains, mainly wheat and barley, covering more than half of the agricultural area. The organic market in Denmark is proportionally the biggest in the world, with organic food making up 12.8% of the total retail food market (Statistics Denmark). According to data from Statistics Denmark, the gross domestic product at factor cost for agriculture stood at DKK 86.273 million in 2021 (+4.3% compared to the pre-COVID level).
Industry employs around 19% of the active population and contributes 19.3% of GDP. The major activity sectors are the chemical, pharmaceutical and biotechnology industries, with niche industries in renewable energy and biotechnology. Denmark has limited natural resources, a fact that slows down the development of its heavy industry. However, the country has enough oil and gas reserves to ensure its energy independence. Uranium mining has been authorised to begin in the autonomous Danish territory of Greenland. Denmark is the world's leading manufacturer of wind turbines and exports the vast majority of its production. According to the latest data from the World Bank, manufacturing accounts for 12% of the country’s GDP.
The services sector contributes three-quarters of GDP (66.7%) and employs the largest share of the population (79%). Denmark has a strong banking sector, characterised by a high degree of concentration: domestic banks own more than 85% of the total assets, and three banks control 50% of total assets. The tourism sector is becoming a growing source of income for the country: although it has been severely hit by the COVID-19 pandemic, in 2021 the number of arrivals exceeded that of 2019. Trade and transport services are also important for the country’s economy (Denmark is the world’s second-largest shipping operator - Coface).
| Breakdown of Economic Activity By Sector | Agriculture | Industry | Services |
|---|---|---|---|
| Employment By Sector (in % of Total Employment) | 2.2 | 18.5 | 79.2 |
| Value Added (in % of GDP) | 0.9 | 19.3 | 66.7 |
| Value Added (Annual % Change) | -15.3 | 5.2 | 5.3 |
Source: World Bank, Latest data available.
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The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.
Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation
The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.
Source: The Economist Intelligence Unit - Business Environment Rankings 2021-2025
See the country risk analysis provided by Coface.
Following an ultimatum to the government by the Social Liberal Party due to the results of a report concerning the mink culling taken by the government headed by Mette Frederiksen (Social Democrats) amid the COVID-19 pandemic, snap elections were held on 1 November 2022. Left parties retained their majority, although it was reduced to a single seat. The governing Social Democrats achieved their best result in 20 years and Mette Frederiksen was confirmed as prime minister, leading a coalition government composed of the Social Democrats, Venstre and the Moderates, the first time since 1977 that both main parties are part of a coalition government.
The Danes voted on 1 June 2022 to join the European Union's defence and security common policy, ending a 30 year opt out.
The main political parties in Denmark are:
The world rankings, published annually, measures violations of press freedom worldwide. It reflects the degree of freedom enjoyed by journalists, the media and digital citizens of each country and the means used by states to respect and uphold this freedom. Finally, a note and a position are assigned to each country. To compile this index, Reporters Without Borders (RWB) prepared a questionnaire incorporating the main criteria (44 in total) to assess the situation of press freedom in a given country. This questionnaire was sent to partner organisations,150 RWB correspondents, journalists, researchers, jurists and human rights activists. It includes every kind of direct attacks against journalists and digital citizens (murders, imprisonment, assault, threats, etc.) or against the media (censorship, confiscation, searches and harassment etc.).
The Indicator of Political Freedom provides an annual evaluation of the state of freedom in a country as experienced by individuals. The survey measures freedom according to two broad categories: political rights and civil liberties. The ratings process is based on a checklist of 10 political rights questions (on Electoral Process, Political Pluralism and Participation, Functioning of Government) and 15 civil liberties questions (on Freedom of Expression, Belief, Associational and Organizational Rights, Rule of Law, Personal Autonomy and Individual Rights). Scores are awarded to each of these questions on a scale of 0 to 4, where a score of 0 represents the smallest degree and 4 the greatest degree of rights or liberties present. The total score awarded to the political rights and civil liberties checklist determines the political rights and civil liberties rating. Each rating of 1 through 7, with 1 representing the highest and 7 the lowest level of freedom, corresponds to a range of total scores.
Political freedom in the world (interactive map)
Source: Freedom in the World Report, Freedom House
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