Governor Signe Krogstrup: Unpredictability has become a fundamental condition for the global economy

Unpredictability means that we cannot base our assessments of economic development on a single path or expectation. Instead, we need to work with multiple scenarios.

Therefore, Danmarks Nationalbank included a risk scenario in its assessment of the outlook for the Danish economy from 26 March . In this scenario, Nationalbanken looks at what could happen if a prolonged war in the Middle East limits energy supply and causes energy prices to rise more than markets expect.

The consequence would be lower growth and higher inflation in Denmark. However, not on the same scale as seen during the inflationary pressures in 2022. Several conditions are different now. For example, consumer demand was strong in 2022 in the wake of the COVID-19 pandemic, and the labor market was tight – factors that further fueled inflation at the time. But uncertainty is high, and new shocks may arise on top of what is already being observed today. Moreover, measures that are being considered in some countries to shield consumers from price increases may themselves contribute to further upward pressure on inflation.

Signe Krogstrup comments: “Unpredictability has become a fundamental condition for the global economy. Most recently, the war in the Middle East has increased energy prices and created problems for supply chains. This weighs on global growth and increases inflation. However, with a balanced growth trajectory, the Danish economy is well equipped to handle uncertainty.”

Not all sources of uncertainty weigh on growth prospects. Artificial intelligence (AI) may, over time, increase productivity and prosperity. But we do not yet know how quickly the effects will materialize, how large they will be, or how the gains will be distributed. There are also risks associated with AI, including in relation to financial stability and cybersecurity.

Already now, expectations of higher productivity are driving large investments in technology and AI, especially in the United States. This supports global growth and trade, even though we have not yet seen the productivity gains from AI.

A recent analysis from Danmarks Nationalbank estimates that AI could increase productivity growth in Denmark by between 1 and 10 percentage points over 10 years. This is a wide range, based on international studies, and it shows how uncertain developments still are.

Signe Krogstrup comments: “The AI transformation is set to reshape the global economy. But there is considerable uncertainty about how and when. Denmark is well positioned to take advantage of potential gains from the use of AI – among other things because we have a flexible labor market and a high degree of digitalization. This is something we should safeguard.”