Analyses focus on current issues of particular relevance to Danmarks Nationalbank’s objectives. The analyses may also contain Danmarks Nationalbank’s recommendations. They include our projections for the Danish economy and our assessment of financial stability. Analyses are targeted at people with a broad interest in economic and financial matters.
Weaker global trade slows growth in Denmark
Higher tariffs in the US reduce global trade, which will dampen growth in the Danish economy. This comes at a time when the aftermaths of the pandemic and energy crisis have subsided. The Danish economy is currently assessed to be in a situation of broadly neutral capacity pressure, with an outlook for low, stable inflation over the next few years. There is limited spare capacity to increase output without fuelling inflation . The Danish government's proposed Finance Act includes plans to significantly ease fiscal policy. However, there is considerable uncertainty about how much fiscal policy will increase capacity pressure over the next few years. If capacity pressure increases noteworthy, it should be offset by fiscal measures that reduce it.
Key messages
Why is this important?
Danmarks Nationalbank continuously oversees the Danish economy to meet our objective of ensuring price stability. Danmarks Nationalbank therefore assess developments in a number of areas and make macroeconomic projections to get the best basis for assessing whether socio-economic imbalances are building up. As Danmarks Nationalbank’s interest rates are reserved for managing the exchange rate of the krone, it is important that other aspects of economic policy are aimed at ensuring a stable economy. Therefore, we make fiscal policy recommendations.
This analysis is supplemented by a thematic analysis and two other analyses. The thematic analysis goes in depth into Danmarks Nationalbank's calculation of the output gap. The output gap is a summary indicator for the assessment of capacity pressure and is used as input in the formulation of the bank's fiscal policy recommendations.
Danmarks Nationalbank has also published an analysis (in English) stating that increased defence spending could moderately increase capacity pressure in the Danish economy. However, the impact on capacity pressure depends on several factors, such as how quickly defence spending increases and how much of the funds are spent abroad.
Danmarks Nationalbank also publishes a third analysis on food prices, that have had a substantial impact on inflation recently. Price increases on food to a large extent reflect global food commodity prices, which have been driven by subdued supply that has not been able to keep up with demand. Therefore, price increases on food are not only a Danish phenomenon.
Main chart
Growth in the Danish economy is dampened by weaker growth in global trade
Note:
Potential GDP is an expression of what the level of output would be if prices and wages had fully adjusted to current economic conditions.
Source:
Statistics Denmark and own calculations.