A Second Case of Dutch Disease

As weight loss injectables, Ozempic and Wegovy have achieved success that was only equal to surgical solutions. While many people became slimmer, the Danish economy grew bigger.

And that could be a problem.

Denmark’s Bigger GDP

Denmark’s economic growth was fed by Novo Nordisk. Described as stratospheric, its pharmaceutical industry was responsible for two-thirds of this growth. Even without industry specific statistics, we can assume that the vast proportion came from Novo Nordisk’s Ozempic and Wegovy sales:

Because the U.S. and other countries manufacture the drugs, Denmark benefits instead from corporate taxes that come from Novo Nordisk’s profit. At 39 billion Danish kroner ($5.7 billion) during the first half of 2023, their profit continued to buoy Denmark’s GDP.

Our Bottom Line: Dutch Disease

Sometimes a GDP surge can be worrisome when it comes from a single source. It reminds us of what dependnce on the oil industry can do to an economy. As it blossoms, other sectors wilt. At home it’s tough for non-oil businesses to pay for increasingly expensive resources. Abroad, a nation’s currency appreciates when international markets clamor for the new commodity. The problems start because that stronger currency makes other exports less attractive.

Then, it gets even worse when other industries disappear, and government depends on oil revenue for social welfare spending. When the boom turns to bust, there are no replacement industries to fill the void, government money dries up, and the source of consumer spending and incomes contracts. It happened in the Netherlands during the 1960s and ’70s. Hence the name Dutch Disease.

While Ozempic and Wegovy treat obesity, they could cause Dutch Disease.

My sources and more: Thanks to one of my students for alerting me to this article. Please note that most of today’s Bottom Line was in a past econlife post.