In the Europe of public debt and fiscal deficits, there is a small country, located far to the north, which seems to experience a completely opposite reality. An economy that is one of the most advanced in the world and which is taking advantage of its vast budget surpluses to reduce its public debt to such an extent that even banks have come to fear a scenario of “shortage” of much-needed sovereign bonds to their daily activities. operations and maintain liquidity in the market. This country could accumulate up to thirteen consecutive budget surpluses and wear your public debt up to 20% of GDPaccording to the latest forecasts from the International Monetary Fund. However, financial sector sources confirmed elEconomista.es that this country’s public debt is even lower than it seems, because the government is accumulating a mountain of cash in an account at the central bank. The real public debt is therefore reduced even more. This budgetary success highlights Denmark, the country that all politicians hold up as an example to follow, but that, when push comes to shove, very few manage to imitate.
According to European Commission data, Denmark’s latest budget surpluses amounted to €1 billion in 2020 (in the midst of the covid pandemic and with public spending skyrocketing to compensate for falling GDP), and between 13 billion and 11 billion in the following years. . These amounts are not negligible, since Denmark is a country with only six million inhabitants and a GDP of around 380 billion euros. These surpluses have repeatedly exceeded 3% of GDP, helping to reduce its public debt to 33% of GDP, the lowest level in all of Europe (courtesy of Luxembourg), according to the data from Eurostat.
Additionally, the latest budget report from the International Monetary Fund projects that public debt will fall to 27% in the coming years. Jan Størup Nielsen, chief economist at Nordea, explains in statements to elEconomista.es that Denmark’s real public debt is even lower. Every year there are billions left over, which the government had not planned for, so debt issuance projects far exceeded the country’s needs: “Currently, gross public debt is around 30% of GDP. However, it is actually much lower, as it does not take into account the government’s large deposit at the Central Bank, which currently stands at around 8 % of GDP”, comments this economist.
“The reason for this large deposit is that the Danish Treasury issued more government bonds than necessary, both to maintain sufficient liquidity in the Danish government bond market and because it was surprised by the low financing requirement We believe that gross debt as a percentage of GDP will continue to decline in the coming years, but is unlikely to fall below 20% in the foreseeable future,” notes the Nordea expert.
Denmark’s antidote
Since the start of 2021, each quarter has recorded a surplus in public finances. In 2023 alone, the total surplus amounted to 3.3% of GDP, and Denmark was again the EU country with the largest budget surplus. The solidity of public finances was supported by a significant recovery in employment. Unemployment rate hits incredible 2.5%. This helps to increase the government’s tax revenues while reducing expenditures such as unemployment benefits: “This provides a high degree of freedom in terms of fiscal policy planning and also helps to ensure that the Danish government’s returns are fundamentally equal to those of Germany. equivalents,” explains Størup.
The antidote goes beyond the unemployment rate. Behind there is a story of arduous reforms that other countries are unable to implement because politicians (and also society) only look for short-term results: “First of all, in Denmark, the government has carried out a series of structural reforms aimed at ensuring a strong increase in labor supply -work. the 2006 Social Protection Agreement is. He implemented a reform in which the retirement age increased according to the life expectancy of the population,” explains the Nordea economist.
Combined with other initiatives, this initiative has significantly increased the labor market participation rate of Danes aged over 60. This significantly increased the government’s tax revenues and at the same time helped reduce spending, for example on unemployment benefits and other benefits for needy families. Although it is a trite and somewhat simplistic expression, there is no better “social assistance” than job creation.
All of the above plus some bold policies to integrate the foreign population have enabled the population arriving from abroad to have very high employment rates: “Over the last 10 years, the employment offer for people of foreign nationality has increased considerably. Currently, around 13% of all employees in Denmark are foreigners.
Third, “the Danish pharmaceutical industry has performed extremely well. This has made a significant positive contribution to employment and has also contributed to the government’s corporate tax revenue,” explains the economist.
Medicines and the seas
The truth is that the strength of the pharmaceutical and shipping sectors is what has driven Denmark’s success in recent years. On the first front, the success of Nordisk in the development of drugs against obesity – the already famous Ozempic And Wegovy– caused an influx of global demand – there is a real boom in the United States – which boosted both Danish exports and the company’s stock price, which became the company with the highest market capitalization in Europe (exceeding Denmark’s GDP).
Evidence of the magnitude of this effect on the country’s economy is that its huge investments and increased production contributed to a growth of the national economy of almost 2%, more than four times the average of the EU. This has led to record public spending on defense, ecological transition and support for Ukraine. Without Novo’s contribution, the Danish economy would have stagnated.
This impulse has extended to the rest of the sector until making the country a power in this area. Production in the pharmaceutical industry increased by just over 15% in 2023. This corresponds to an annual effect on GDP of several billion Danish crowns. According to a report released by Apollo in September, Up to 70% of GDP growth can now be attributed to the pharmaceutical sector.
This pharmaceutical competition in Denmark promises to stimulate the economy for years. This industry generates huge profits which impact the Danish economy in different ways. On the one hand, through the different taxes, among which the corporate tax stands out (which taxes the profits of these giants). On the other hand, through employment, since these pharmaceutical companies directly generate quality jobs (researchers, executives, logistics, etc.) and other types of jobs indirectly.
In the case of maritime transport, the proper name is Maersk. The company, known as the “king” or “giant” of the seas, whose screen printing virtually monopolizes the containers stacked on ships and cargo ports around the world, has enjoyed a golden period after the covid disruptions in the supply chain. Higher incomes due to higher freight costs have stimulated this export machine, essential for the balance of payments.
The Danish Industrial Confederation points out that Novo Nordisk and Maersk are, by Danish standards, incredibly large companies. The development of these two companies is therefore very clearly reflected in the Danish national accounts. This also applies to the extraction of oil and gas from the North Sea. Part of the growth in 2024 comes from the reopening of the Tyra oil and gas field.
Fewer guys, more momentum
The numbers support this story. Danish foreign trade has increased significantly in the post-Covid years. Adjusting for inflation, Exports increased by almost 40%, reaching a record high in early 2024. This year, Danish exports are expected to increase by 4%. “In the coming years, we expect an annual increase of 4 to 5%. This is based on expectations of continued growth in the pharmaceutical industry, but also on the fact that other industries will increasingly benefit “Increased activity in various markets and demand for growth prospects in key markets such as Germany, Great Britain and Sweden are expected to increase exports,” Nordea analysts say in a report on the outlook for September.
For this panel of experts, the continued progress of the Danish economy is mainly based on the prospect of a interest rate reductionwhich will boost demand in Denmark, in addition to key export markets. “In turn, strong increases in real wages will pave the way for greater household consumption,” they add. The outlook is for the Danish central bank’s deposit rate to fall to 1.85% by the end of 2025. In this case, it will be the lowest level since the start of 2023, but still significantly above from the all-time low of -0%. from fall 2019 to early spring 2020.
After growing by 2.2% in the first half of this year compared to the same period in 2023 (the eurozone grew by 0.5%), the Danish economy will continue to grow with an overall growth of 1.5 % by 2024, estimates Nordea. For 2025, they estimate growth of 1.7% which, they conclude, will be repeated in 2026. In their October 2024 observatory, the IMF presents projections of GDP growth in Denmark 1.9% in 2024 and 1.6% the following year. Although not as strong as the 2.5% in 2023, the Danish economy (and its surpluses) continues to gain weight… even if it does so with diet pills.
