How Wegovy has Reshaped the Danish Economy

This is a good-bad problem to have and a very interesting story.

While central banks around the world are fighting to lower inflation, Denmark is being forced to lower interest rates to maintain it’s peg to the Euro and deflate it’s currency.

The drug, Wegovy, was approved by the FDA in June of 2021 and is manufactured by Danish company Novo Nordisk.

Wegovy is a preventative treatment that helps overweight people lose weight, which leads to lower rates of heart disease and other obesity related illnesses.

Since it’s release, many people around the world, including a substantial amount from the US, have began taking the drug.

Because of that demand Novo Nordisk and Denmark have seen a substantial inflow of foreign currency.

And Novo Nordisk has been converting that foreign currency back to the Danish Krone at very high volumes which drifts the currency higher, away from it’s peg to the Euro.  

Because a currency’s value is determined by supply and demand, the Danish Central Bank has been keeping rates lower than the European Central Bank in an effort to reduce foreign buyer demand for the currency.

Novo Nordisk total market value is also greater than the entire GDP of Denmark.

That all probably doesn’t seem to bad, but it is a problem to be solved.

Novo Nordisk’s success with Wegovy and Ozempic is overall beneficial to the Danish economy.

More jobs will be created by the company’s growth as it invests domestically and lower interest rates also benefit home buyers who can secure mortgage rates somewhat lower than in the rest of Europe.

Gian Maria Milesi-Ferretti, an economist and senior fellow at the Brookings Institution, said “It is an embarrassment of riches—this is good for the Danish economy and they’re getting a lot of export revenues.”

For small countries having a single company carry such a disproportionate role in the economy is a risk.

But back in 2000, Nokia is what set off and played a significant role in Finland’s growth from 1995-2007, when GDP per capita rose 55%, nearly double the increase in the U.S.