Turn the clock back eighteen months and there was real concern in Danish economic circles. The Russian government’s illegal war in Ukraine had caused a severe jolt to the European economy, with energy prices skyrocketing. This turbulence came on the back of supply chains being stretched after COVID, and with interest rates increasing to levels not seen for over a decade. It was a potential perfect storm and nobody was sure how it would play out.

 

Fast forward to now, and the Danish economy is motoring on. Growth figures are robust, unemployment is low, and the state finances are in an enviable state – with hefty budget surpluses and a national debt of a modest 30% of GDP, a figure the likes of France, the US and the UK could only dream of.  It is true that inflation was high towards the end of 2022, but its peak was short-lived and it is now firmly back under control.

 

So does this must mean all is rosy in the country? Not quite. The healthy state of the economy brings its own expectations; for example the surge of inflation has eroded any recent increases for public sector workers. They can reasonably argue that the money exists to pay them more. Chief among these are workers in the health sector, like nurses. The recently published Salary Committee (through some questionable assumptions) concluded that nurses are not underpaid; but this does not stack up with the facts on the ground, where there are not enough skilled nurses to recruit. More generally, the health care system is creaking; this needs to be corrected, otherwise the implicit bargain of high tax rates in return for good quality public services, not least health care, will be broken.

 

A more technical point is that Denmark’s recent GDP figures are slightly misleading. Economists have often referred to Ireland’s GDP figures as being close to meaningless due to the big tech companies having their European headquarters there. For example, the astonishing 25% increase in Irish GDP in 2015 had more to do with changes in the recognition of corporate intellectual property assets, than any sudden wealth of the average Irish worker. Something similar is happening in Denmark, albeit less dramatically. The huge demand in 2023 for Novo Nordisk’s diabetes/anti-obesity products have given the Danish GDP figures a very healthy sheen. But 99% of Novo Nordisk’s sales are abroad, and whether this is indicative of a rise of the standard of living is open to question, but the headline GDP figures can be cited to brush off any questions.

 

Putting that to one side, the Danish labour market is clearly stretched, meaning that growth could run out of steam at any point. The most obvious way to tackle this is through more liberal immigration policies, and some rules have been tweaked. Any meaningful change though, would mean re-opening the debate around the most controversial issue in Danish politics over the past 25 years.

 

The economic success could have a more low-key impact though. Churchill’s saying “never let a good crisis go to waste” indicates how difficult it is to make fundamental changes during smooth sailing. The Danish government leaned into this last year when abolishing the publicly holiday for Great Prayer Day, citing the invasion of Ukraine. Truth be told, they overstated the short-term need, but the long-term dynamics are real. With modest population growth and long life expectancy, Denmark’s demographic composition will change in the coming decades. The time to prepare for that is now, but with a stable economy again, arguing for fundamental changes is tougher than ever.