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ECONOMY

Better-than-expected Danish economy frees up 11 billion kroner for budget

Denmark's finance minister said on Friday that recent good news for the country's economy had freed up an extra 11 billion kroner (€1.5bn) for government spending.

Published: 24 May 2024 16:43 CEST
Better-than-expected Danish economy frees up 11 billion kroner for budget
Denmark's finance minister, Nicolai Wammen, gives a speech to municipality chiefs at a conference in Aalborg in March. Photo: Bo Amstrup/Ritzau Scanpix

“The long and the short of it is that the Danish economy is rock solid,” Nicolai Wammen told Denmark’s Ritzau newswire after the announcement. “But we also live in a world of great uncertainty: it is important to remember that only a year and a half ago we had the highest inflation in 40 years.” 

Wammen said that better-than-expected employment figures had pushed the ministry to adjust its estimate of its spending leeway under Denmark fiscal rules by 11.25 billion kroner between 2024 and 2030. As a result, he said, he planned to earmark an addition 4.1 billion kroner for public spending in 2025. 

“Over 3 million are in employment, and the progress in employment has been particularly high in the private sector,” he said in a press release. “At the same time, unemployment is low.” 

He pointed to the increase in the number of labour migrants coming to Denmark as a result of the government’s policies, adding that more reforms would be needed in future to increase the labour supply due to a demographic situation which meant the country was about to see a larger number of people retiring than coming into the system. 

“With the reforms that have been implemented and are underway, the government has increased the labor supply by 29,000 full-time workers in 2030. The government aims to increase the labor supply by 45,000 full-time workers,” he said. 

The increased spending leeway, he said, would make it easier for the government to take Denmark through some of the major changes it needs to make in the coming years. 

“This gives us an even stronger foundation for handling the challenges we face. At the same time, we must also continue to be aware that we still need more hands and minds in both the public and private sectors if we are to ensure growth, welfare, green transition and our security in Denmark, among other things,” he said. 

Wammen told the public broadcaster TV2 that much of the extra money would be used to increase funding to municipalities and the regional governments who run Denmark’s healthcare system. 

But also warned that it was important that the government does not shift to a more expansive economic policy that breathed life back into inflation.

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ECONOMY

Explained: Why Denmark’s economy is looking in such extremely good shape

Denmark's economy is growing faster than the government expected, inflation is falling faster, and employment is holding up better. We explain why the new economic forecast shows Denmark has achieved the softest of soft landings.

Published: 16 May 2024 15:41 CEST
Explained: Why Denmark's economy is looking in such extremely good shape

 “When I stood here a year ago and presented my first financial statement, it was with a message that the Danish economy was heading for a soft landing. We have since been strengthened in that assessment,” Stephanie Lose, Denmark’s economy minister, said at a press conference announcing the government’s Økonomisk Redegørelse, or financial statement, for May. 

In the press statement, she said, “optimism is returning to the Danish economy”, with the economy likely to improve further in the coming year.

“We have carried out reforms that make Denmark richer and help to secure the necessary workforce for Danish companies,” she said. 

How has the government changed its growth forecasts? 

The government has increased its expectation for Denmark’s growth rate since its last statement in December, with it now expecting 2.7 percent growth in 2024, up from the1.4 percent it expected for the year in December. 

It has also upgraded its expectations for 2025, predicting growth of 1.8 percent compared to the 1 percent it expected back in December. 

Lose said that the pharmaceutical company Novo Nordisk, which is expanding rapidly as a result of the success of its weight-loss drugs Ozempic and Wegovy, had driven much of Denmark’s recent growth, with the reopening of Denmark’s gas field, the Tyra field, would start to contribute to growth soon.

“In the past two years, the pharmaceutical industry in particular has driven growth in the Danish economy, while there has been stagnation or decline in large parts of the rest of the economy,” she said. “In the coming years, other industries again look set to contribute to growth. Added to this is the reopening of the Tyra field in the North Sea, which also contributes to growth in GDP.” 

What does the government expect to happen to inflation? 

Denmark’s inflation rate fell rapidly from a peak of over 10 percent in October 2022 to below 2 percent in September 2023, where it has stayed ever since. But Lose said she expected the rate to edge up over the coming years. 

“Inflation has fallen quickly and faster than expected,” Lose said. “In the new forecast, we expect inflation to rise in the coming months, as the prices of services and energy pull in the direction of slightly higher inflation.” 

What does the government expect to happen to employment? 

Thanks mainly to Novo Nordisk increasing staffing to manage the success of its new drugs, and the bounce back from the pandemic, employment has also held up better than expected.

Employment soared by some 160,000 people between 2021 and 2023, and the government now expects the number of employed people to grow by a further 13,000 in 2024 but to then fall by 18,000 in 2025. 

“Employment has long been at a sky-high level, so it is estimated that we will see some adjustment. But we do not expect an extensive setback, because the Danish economy stands on a rock-solid foundation,” Lose said.

What does the government expect to happen to housing prices? 

The government has significantly upgraded its expectations of what will happen to the price of domestic property this year. It now expects prices to increase by an average of 3.2 percent in 2024 and 3 percent in 2025, a rise of two percentage points on the 1.2 percent rise for 2024 it expected when it made its last forecast in December. 

This is due to the continued strong labour market, which has seen rising incomes and wage increases in Denmark as a result of new collective agreements, at the same time as Denmarks Nationalbank is expected to cut interest rates. 

This rise follows two consecutive years of falling real house prices in 2022 and 2023. 

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