Economy of Denmark
has a modern high-income and highly developed mixed economy, dominated by the service sector with 80% of all jobs; about 11% of employees work in manufacturing and 2% in agriculture. The nominal gross national income per capita was the ninth-highest in the world at $68,827 in 2023.
Correcting for purchasing power, per capita income was Int$57,781 or 10th-highest globally. The income distribution is relatively equal but inequality has somewhat increased during the last decades. In 2017, Denmark had the seventh-lowest Gini coefficient of the then 28 European Union countries. With 5,932,654 inhabitants as of 1 January 2023, Denmark has the 38th largest national economy in the world measured by nominal gross domestic product, and the 52nd largest in the world measured by purchasing power parity. Among OECD nations, Denmark has a highly efficient and strong social security system; social expenditure stood at roughly 26.2% of GDP.
Denmark has a very long tradition of adhering to a fixed exchange-rate system and still does so today. It is unique among OECD countries to do so while maintaining an independent currency: the Danish Krone, which is pegged to the euro. Though eligible to join the EU's Economic and Monetary Union, Danish voters in a referendum in 2000 rejected exchanging the krone for the euro. Whereas Denmark's neighbours like Norway, Sweden, Poland and the United Kingdom generally follow inflation targeting in their monetary policy, the priority of Denmark's central bank is to maintain exchange rate stability. Consequently, the central bank has no role in a domestic stabilization policy.
In an international context, a relatively large proportion of the population is part of the labour force, in particular because the female participation rate is very high. 78.8% of all 15-to-64-year-olds were active in the labour market in 2017, the sixth-highest number among all OECD countries. With a 4.8% unemployment rate, unemployment is relatively low in comparison to other European countries, where the average unemployment rate is 6.7%. The labour market is traditionally characterized by a high degree of union membership rates and collective agreement coverage. Denmark invests heavily in active labor market policies and the concept of flexicurity has been important historically.
Denmark is an example of the Nordic model, characterized by an internationally high tax level, and a correspondingly high level of government-provided services. There are also income transfers to various groups, such as retirees, disabled people, the unemployed, and students. Altogether, the amount of revenue from taxes paid in 2017 amounted to 46.1% of GDP. The Danish fiscal policy is generally considered healthy. The net government debt is very close to zero, amounting to 1.3% of GDP in 2017. The Danish fiscal policy is characterized by a long-term outlook, taking into account likely future fiscal demands. During the 2000s, a challenge was perceived to government expenditures in future decades. It was ultimately a challenge to fiscal sustainability from demographic development, in particular higher longevity. Responding to this, age eligibility rules for receiving public age-related transfers were changed. Since 2012, calculations of future fiscal challenges, from both the government and independent analysts, have generally perceived Danish fiscal policy to be sustainable. In recent years, it was considered overly sustainable.
History
Denmark's long-term economic development has largely followed the same pattern as other Northwestern European countries. In most of recorded history Denmark has been an agricultural country with most of the population living on a subsistence level. Since the 19th century, Denmark has gone through an intense technological and institutional development. The material standard of living has experienced formerly unknown rates of growth, and the country has been industrialized and later turned into a modern market-economy society.Almost all of the land area of Denmark is arable. Unlike most of its neighbours, Denmark has not had extractable deposits of minerals or fossil fuels, except for the deposits of oil and natural gas in the North Sea, which started playing an economic role only during the 1980s. On the other hand, Denmark has had a logistic advantage through its long coastal line and the fact that no point on Danish land is more than 50 kilometers from the sea – an important fact for the whole period before the industrial revolution when sea transport was cheaper than land transport. Consequently, foreign trade has always been very important for the economic development of Denmark.
File:Penning - dannebrogsmønt - Kmm 0034.jpg|thumb|left|Danish silver penning from the time of Valdemar I of Denmark
Already during the Stone Age there was some foreign trade, and even though trade has made up only a very modest share of total Danish value added until the 19th century, it has been decisive for economic development, both in terms of procuring vital import goods and because new knowledge and technological skills have often come to Denmark as a byproduct of goods exchange with other countries. The emerging trade implied specialization which created demand for means of payments, and the earliest known Danish coins date from the time of Svend Tveskæg around 995.
File:Otto Thott.jpg|thumb|Count Otto Thott was the foremost representative of mercantilist thought in Denmark.
Improvements in shipping technology allowed traders to sail around Jutland and into the Baltic Sea directly, and Danish warships collected the Sound Toll from these mainly Dutch merchants, in exchange for protection. Nordic rulers before the mid-seventeenth century welcomed the Dutch merchants for their efficient shipping services and inflow of investments which boosted industrial development. According to economic historian Angus Maddison, Denmark was the sixth-most prosperous country in the world around 1600. The population size relative to arable agricultural land was small so that the farmers were relatively affluent, and Denmark was geographically close to the most dynamic and economically leading European areas since the 16th century: the Netherlands, the northern parts of Germany, and Britain. Still, 80 to 85% of the population lived in small villages on a subsistence level.
Mercantilism was the leading economic doctrine during the 17th and 18th century in Denmark, leading to the establishment of monopolies like Asiatisk Kompagni, development of physical and financial infrastructure like the first Danish bank Kurantbanken in 1736 and the first "kreditforening" in 1797, and the acquisition of some minor Danish colonies like Tranquebar.
At the end of the 18th century major agricultural reforms took place that entailed decisive structural changes. However, the Napoleonic Wars caused Copenhagen to lose its status as an international center of finance and trade. Politically, mercantilism was gradually replaced by liberal thoughts among the ruling elite. Following a monetary reform after the Napoleonic wars, the present Danish central bank Danmarks Nationalbank was founded in 1818.
There exists national accounting data for Denmark from 1820 onwards thanks to the pioneering work of Danish economic historian Svend Aage Hansen. They find that there has been a substantial and permanent, though fluctuating, economic growth all the time since 1820. The period 1822–94 saw on average an annual growth in factor incomes of 2% From around 1830 the agricultural sector experienced a major boom lasting several decades, producing and exporting grains, not least to Britain after 1846 when British grain import duties were abolished. When grain production became less profitable in the second half of the century, the Danish farmers made an impressive and uniquely successful change from vegetarian to animal production leading to a new boom period. Parallelly industrialization took off in Denmark from the 1870s. At the turn of the century industry fed almost 30% of the population.
During the 20th century agriculture slowly dwindled in importance relative to industry, but agricultural employment was only during the 1950s surpassed by industrial employment. The first half of the century was marked by the two world wars and the Great Depression during the 1930s. After World War II Denmark took part in the increasingly close international cooperation, joining the OECD, IMF, WTO, and from 1972 the European Economic Community, later European Union. Foreign trade increased heavily relative to GDP. The economic role of the public sector increased considerably, and the country was increasingly transformed from an industrial country to a country dominated by production of services. The years 1958–73 were an unprecedented high-growth period. The 1960s are the decade with the highest registered real per capita growth in GDP ever, i.e. 4.5% annually.
During the 1970s Denmark was plunged into a crisis, initiated by the 1973 oil crisis leading to the hitherto unknown phenomenon stagflation. For the next decades the Danish economy struggled with several major so-called "balance problems": High unemployment, current account deficits, inflation, and government debt. From the 1980s economic policies have increasingly been oriented towards a long-term perspective, and gradually a series of structural reforms have solved these problems. In 1994 active labour market policies were introduced that via a series of labour market reforms have helped reducing structural unemployment considerably. A series of tax reforms from 1987 onwards, reducing tax deductions on interest payments, and the increasing importance of compulsory labour market-based funded pensions from the 1990s have increased private savings rates considerably, consequently transforming secular current account deficits to secular surpluses. The announcement of a consistent and hence more credible fixed exchange rate in 1982 has helped reducing the inflation rate.
In the first decade of the 21st century new economic policy issues have emerged. A growing awareness that future demographic changes, in particular increasing longevity, could threaten fiscal sustainability, implying very large fiscal deficits in future decades, led to major political agreements in 2006 and 2011, both increasing the future eligibility age of receiving public age-related pensions. Mainly because of these changes, from 2012 onwards the Danish fiscal sustainability problem is generally considered to be solved. Instead, issues like decreasing productivity growth rates and increasing inequality in income distribution and consumption possibilities are prevalent in the public debate.
The global Great Recession during the late 2000s, the accompanying Euro area debt crisis and their repercussions marked the Danish economy for several years. Until 2017, unemployment rates have generally been considered to be above their structural level, implying a relatively stagnating economy from a business-cycle point of view. From 2017/18 this is no longer considered to be the case, and attention has been redirected to the need of avoiding a potential overheating situation.
In 2022 the popularity of Novo Nordisk's Ozempic and Wegovy for weight loss began greatly affecting the Danish economy. The pharmaceutical industry contributed two thirds of growth that year, and 1.7 points of the 1.9% year-over-year growth in the first quarter of 2023. Novo Nordisk's market capitalization—Europe's second-largest, after LVMH—exceeded the size of the entire national economy, and it is the largest payer of corporate taxes to the Danish state. Economists discussed whether the government needed to publish data including and excluding the company; as the enormous economic growth did not similarly increase employment, data including Novo Nordisk is misleading regarding the Danish business cycle. Some worried that the nation might become overdependent on the company, similar to what happened to the economy of Finland with Nokia, or that Novo Nordisk's success might cause Dutch disease.