Denmark Central Bank Lifts 2026 GDP Forecast to 4%, Warns Against Fiscal Stimulus

Denmark's central bank on Wednesday raised its economic growth forecast to 4% for the current year but strongly advised the government against further fiscal stimulus, citing risks of fueling inflation. Danmarks Nationalbank stated that the economy has limited spare capacity, and additional government-stoked demand could create significant price pressures.

Growth Driven by Pharmaceuticals

The central bank attributed the robust growth outlook primarily to an "exceptional increase in pharmaceutical production abroad" during the first half of the year. It noted, however, that this specific driver has a limited impact on Denmark's domestic labor market and capital usage.

Looking ahead, the bank expects exports, higher public demand, and rising real incomes to support a more balanced economic expansion. Governor Christian Kettel Thomsen cautioned that the government should not increase demand beyond measures already outlined in August and should be wary of using its full fiscal scope in the coming years.

Economic Outlook and Projections

Danmarks Nationalbank provided a detailed outlook for the Danish economy, projecting a moderation in growth and shifts in inflation.

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• GDP Growth: Forecast to slow to 2.3% in 2027 and 2.0% in 2028.
• Inflation: Expected to be 1.7% this year, before rising to 2.4% in 2027 and then easing to 2.1% in 2028.

The bank described the overall outlook as a "balanced economy with high employment and low unemployment." While it expects higher energy prices linked to the Middle East conflict to temporarily push inflation higher over the winter, it anticipates price growth will remain low and stable over the longer term.

Focus on Fiscal Policy

The central bank's warning comes as Denmark's fiscal policy is already set to ease significantly this year and next. The ultimate impact on capacity pressures will depend on several factors, including how much of the government's planned defense spending is directed toward imports rather than domestic production.

The bank's core message is that with the economy operating near its potential, additional stimulus poses a greater risk than benefit. The guidance aims to prevent the economy from overheating and ensure that inflation remains anchored.