^{Source: Bloomberg}

Denmark’s economy has seen remarkable growth in recent years, primarily driven by an exceptional surge in pharmaceutical exports. In 2024, the country recorded an impressive 3.7% GDP growth, a stark contrast to the relatively subdued performance of other economic sectors. However, the International Monetary Fund (IMF) has forecasted a slowdown, projecting growth to dip to 2.9% in 2025 and further to 1.8% in 2026.

While some might suspect that the looming threat of U.S. tariffs could play a role, the IMF points out that this is not the main factor. Instead, a maturing pharmaceutical sector and a shrinking working-age population are the primary culprits.

The Pharma Powerhouse Behind Denmark’s Economic Success

The recent economic success of Denmark can largely be attributed to its booming pharmaceutical sector. In particular, Danish drugmakers like Novo Nordisk have played a pivotal role. The company’s flagship products — Wegovy and Ozempic, used for diabetes and weight loss — have driven a significant increase in foreign demand.

Novo Nordisk’s sales as a share of Denmark’s GDP have surged from just 1% in the early 1990s to 8.3% in 2023. This rapid growth can be traced back to the rising global prevalence of diabetes and obesity, which has fueled demand for effective treatments. However, the company faced a setback when the U.S. Food and Drug Administration (FDA) permitted compounding pharmacies to create generic versions amid a supply shortage. Fortunately for Novo Nordisk, the FDA lifted this permission in February 2024, giving pharmacies until May 22 to halt the production of copies.

Novo Nordisk’s CEO, Lars Fruergaard Jørgensen, expressed optimism about sales rebounding in the latter part of the year, bolstered by the FDA’s decision.

U.S. Tariffs: A Minimal Threat

Despite concerns over U.S. tariffs, the IMF reassures that the impact on Denmark will be limited. The reason? Most Danish pharmaceutical products are not directly manufactured within Denmark or exported as finished goods. Instead, the Danish pharma industry primarily follows a "merchanting and processing" model. This means that much of the value lies in intellectual property, with manufacturing outsourced to other countries.

According to the IMF, exports produced in Denmark that pass through customs account for just 3% of the country's total exports. This limited exposure significantly reduces the potential damage from U.S. tariffs. While the U.S. remains a critical trading partner, the structure of Denmark’s pharmaceutical exports acts as a buffer against direct economic fallout.

Trump’s Tariff Threat: A Broader Impact on the Pharma Sector

While Denmark’s economy might be somewhat insulated, the wider European pharmaceutical industry is on edge due to President Trump’s push for drug price reductions. In a recent executive order, Trump directed drug manufacturers to lower U.S. prices to match the lowest prices paid internationally.

During a press event, Trump emphasized, "We are going to pay the lowest price there is in the world." Though he did not specify which countries or drugs would be affected, the move is clearly aimed at reducing the high cost of medications within the United States.

A 2024 report by the U.S. Department of Health & Human Services revealed that U.S. drug prices were nearly three times higher than those in 33 OECD countries. This disparity has prompted the administration to take aggressive measures, including potential tariffs on drug imports, to equalize prices.

Denmark’s Future Growth: What Lies Ahead

The IMF projects that Denmark’s economic growth will moderate beyond 2026, settling at around 1.5%. This expected slowdown is attributed to a maturing pharmaceutical sector and a declining working-age population. Economists believe that as the pharma industry stabilizes and innovation cycles slow down, the explosive growth witnessed in recent years will be harder to maintain.

Moreover, while Trump’s tariffs may not significantly affect Denmark, heightened trade tensions and ongoing policy uncertainties could still pose risks. Global shifts in trade agreements and new regulations could indirectly impact Danish exports in the long run.

A Resilient Yet Cautious Outlook

Denmark’s economic boom, driven by its pharmaceutical exports, remains a notable success story. Despite the threat of U.S. tariffs, the country’s unique export structure has insulated it from major disruption. However, as the growth rate slows, policymakers must consider strategies to diversify the economy and address demographic challenges.

While Trump’s tariff threats loom over the broader European pharmaceutical industry, Denmark’s approach to drug manufacturing and export offers a protective cushion. Looking ahead, the challenge will be to sustain economic vitality amid evolving global trade dynamics and domestic economic adjustments.

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