Denmark’s economic growth, which was driven by what economists described as an “exceptional surge” in pharmaceutical exports, is expected to weaken this year.
Denmark’s recent economic boom, largely attributed by economists to an “exceptional surge” in its pharmaceutical exports, is projected to experience a slowdown in growth this year. However, a new report from the International Monetary Fund (IMF) indicates that the looming threat of U.S. tariffs on the pharmaceutical industry is unlikely to be a significant contributing factor to this deceleration for Denmark.
In its latest assessment of the Nordic nation, released on Tuesday, the IMF forecasts a moderation in Denmark’s economic output. After achieving a robust growth rate of 3.7% in 2024, the IMF anticipates Denmark’s economy to expand by 2.9% in the current year and further decelerate to 1.8% in 2026. These projected declines are primarily linked to an expected weakening in overall export growth, including the previously high-performing pharmaceutical sector.
Despite the anticipated slowdown in pharmaceutical export growth, the IMF highlighted a key factor that will likely shield Denmark from the direct impact of potential U.S. tariffs on pharmaceutical imports. The fund noted that the majority of Danish pharmaceutical products are neither manufactured within Denmark nor do they physically cross its borders as finished goods.
This unique situation arises from the increasing reliance of Danish drugmakers on a “merchanting and processing” model. In this system, the primary value of the medicines lies in the embedded intellectual property, with Danish pharmaceutical companies contracting manufacturers located in other countries to handle the actual production and direct shipment of the drug products.
Elaborating on this point, the IMF stated, “The U.S. is a key trading partner; however, exports produced in Denmark passing through customs account for only 3 percent of total exports, limiting the direct impact of U.S. tariffs on the Danish economy.” The fund further clarified that while “direct impacts from U.S. tariffs are expected to be limited, heightened trade tensions and trade policy uncertainty pose risks to the outlook” for the broader Danish economy.
Looking beyond the immediate forecast period, the IMF projects a medium-term growth rate of around 1.5% for Denmark after 2026. This more moderate long-term outlook is attributed to the anticipated maturation of the pharmaceutical sector, which has been a significant growth engine, coupled with a declining working-age population within the country.
The IMF’s recent analysis echoes its observations from last fall, when its economists pointed to an “exceptional surge” in Denmark’s pharmaceutical industry as the primary driver of the nation’s economic growth, while other sectors of the economy remained “relatively subdued.”
The fund specifically highlighted the pivotal role of Novo Nordisk, the Danish pharmaceutical giant, and the massive increase in foreign demand for its highly successful diabetes and weight loss medications, Wegovy and Ozempic, as a key contributor to this growth. The IMF noted the remarkable expansion of Novo Nordisk’s sales as a share of Denmark’s GDP, rising from a mere 1% in the early 1990s to an impressive 8.3% in 2023.
It’s worth noting that Novo Nordisk had previously experienced a decline in sales of its flagship drugs following the U.S. Food and Drug Administration’s (FDA) decision last year to permit American compounding pharmacies to produce copycat versions amidst a supply shortage in the U.S. However, in April of this year, the FDA declared the shortage to be resolved as of February, setting a deadline of May 22 for compounding pharmacies to cease selling these copies. Novo Nordisk CEO Lars Fruergaard Jørgensen indicated to CNBC last week that this FDA action is expected to boost the company’s sales later in the current year.
While Denmark appears relatively insulated from direct U.S. pharmaceutical tariffs due to its unique production and export model, the broader European pharmaceutical industry faces a more significant potential headwind in the form of U.S. President Donald Trump’s stated intention to impose tariffs on drug imports.
Although pharmaceuticals were initially exempted from President Trump’s “reciprocal” tariffs regime announced in April, his subsequent pronouncements have specifically targeted the global pharmaceutical industry. He has threatened to implement separate levies on pharmaceuticals exported to the United States and has publicly demanded a reduction in U.S. drug prices.
Underscoring his commitment to this issue, President Trump signed an executive order on Monday directing drug manufacturers to lower their drug prices to align with the considerably lower prices prevalent in other developed countries. While the president did not specify particular nations, he indicated a focus on developed economies, stating that “there are some countries that need some additional help, and that’s fine.”
“Basically, what we’re doing is equalizing,” President Trump stated during a press event. “We are going to pay the lowest price there is in the world. We will get whoever is paying the lowest price, that’s the price that we’re going to get.” White House officials did not disclose the specific medications that would be subject to the executive order but indicated that it would impact both the commercial market and government-funded healthcare programs like Medicare and Medicaid. Notably, data released in 2024 by the U.S. Department of Health & Human Services revealed that in 2022, U.S. prices for all drugs (both brand-name and generic) were nearly three times higher than prices in 33 comparable OECD countries.
The looming threat of tariffs on pharmaceutical imports has been described as a “sword of Damocles” hanging over Europe’s pharmaceutical industry. CEOs within the sector have warned of a potential exodus of major European players to the U.S. in an attempt to circumvent these potential levies.
The European Federation of Pharmaceutical Industries and Associations (EFPIA), representing major European pharmaceutical companies including Novo Nordisk, Bayer, AstraZeneca, GSK, Roche, and Sanofi, issued a stark warning to European Commission President Ursula von der Leyen in April. The EFPIA cautioned that “unless Europe delivers rapid, radical policy change then pharmaceutical research, development and manufacturing is increasingly likely to be directed towards the U.S.”
The federation cited a survey of its members indicating that approximately 100 billion euros ($112 billion) worth of capital expenditure and research and development investments were at risk as a direct consequence of this situation. The EFPIA asserted that “the U.S. now leads Europe on every investor metric from availability of capital, intellectual property, speed of approval to rewards for innovation. In addition to the uncertainty created by the threat of tariffs, there is little incentive to invest in the EU and significant drivers to relocate to the U.S.” This underscores the significant concerns within the European pharmaceutical industry regarding the potential impact of U.S. trade policies and the attractiveness of the U.S. as an investment destination.
