Denmark Economic Forecast

The economy was likely unable to avoid a slight quarter-on-quarter contraction in Q1, following a surprisingly strong GDP expansion in Q4 2022. Challenges mounted at the outset of 2023. Industrial output contracted month on month in January–February on average, markedly below Q4’s expansion. Additionally, the manufacturing PMI revealed conditions in February–March deteriorated at the steepest pace since mid-2022. Borrowing costs were raised further—to their highest since early 2009—and the unemployment rate rose to an 18-month high in February. Both consumer and business sentiment gradually improved through March but remained deeply pessimistic. Meanwhile, monthly retail sales expanded in the first two months of the year, while price pressures softened throughout the quarter; in March, inflation moderated to an 11-month low, likely supporting consumption.

In March, inflation cooled to an 11-month low of 6.7% (February: 7.6%), as price pressures for transport and housing and utilities eased. Similarly, core inflation eased to 6.4%. Our panelists expect the downward trend to continue through 2023 amid higher interest rates and cooling activity. That said, headline inflation will average more than double the ECB’s 2.0% target.