Transcript
Investment Research — General Market Conditions
9 March 2015
Economic Fact Book: Denmark Denmark is a small open economy and the Danish business cycle tracks the euro area. Denmark was hit hard by the financial crisis due to the combination of the global recession and the Danish housing market bubble bursting. GDP fell by 5.1% from 2008 to 2009. The housing market bubble bursting is key to explaining why private consumption has been more or less constant since 2009. The Danish economy is currently recovering but the recovery is weak and fragile. Denmark has now enjoyed positive GDP growth for six consecutive quarters. Last year was the first full year of positive economic growth since 2011. Employment has picked up and the number of employed persons in Q4 14 was 31,800 higher than the latest trough in Q1 13. Also, the housing market is recovering but the recovery is concentrated mainly in the Copenhagen area. We expect GDP to increase by 1.6% in 2015, rising to 2.0% in 2016, supported mainly by the low oil price. Recently, Denmark has received substantial attention due to the appreciation pressure on the Danish krone. Denmark has had a very tight fixed exchange rate system since 1982 (first against the Deutschmark and since 1999 against the euro) and the peg is a key element of economic policy in Denmark. The Danish central bank has countered the recent appreciation pressure by multiple rate cuts and FX intervention. Denmark will not leave the peg as the peg is a political decision that enjoys full support across the political parties. See also Research Denmark: The Danish peg is indisputable, 16 January. The Danish central bank will continue to use its conventional measures (rate cuts and intervention purchases) in order to counter the appreciation pressure going forward. The Danish central bank has expressed that it will do ‘whatever it takes’, which includes introducing new unconventional measures if necessary. Denmark has had a surplus on its current account balance every year but one since 1990 (except 1998), implying that it now has positive net foreign assets. In 2014, the current account surplus was very large (6.2% of GDP), reflecting high domestic savings despite the large gross debt of households. The Danish household debt situation attracts attention from time to time but the significant gross debt is financed domestically, as the debt accumulation is largely a consequence of significant gross pension savings combined with a low cost and flexible mortgage system. See also Research Denmark: Danish households are resilient, 14 November 2014. Public finances are sound and both the government deficit and government debt meet the criteria of the Stability and Growth Pact. Denmark is one of few that enjoys triple-A ratings across the three major rating agencies. Government bond yield spreads to Germany are negative. The next general election must be held no later than September this year.
Key facts on Denmark Population: 5.6m (2013). GDP per capita: DKK336,100
(EUR 45,100). Government type: constitutional
monarchy. Fixed exchange rate regi: vis-a-vis
euro. Queen: Margrethe II. Minority coalition led by the Social
Democrats (S) and the Social Liberal Party (R). Prime Minister: Helle Thorning
Schmidt (Social Democrats). Next elections: September 2015,
at the latest. Central Bank Governor: Lars
Rohde.
Economic characteristics
Large public sector.
Low private consumption
High level of household debts.
Low unemployment.
Demographic challenges due to dependency.
See the following pages for illustrative charts and tables. Analyst Mikael Olai Milhøj +45 45 12 76 07
[email protected]
Important disclosures and certifications are contained from page 8 of this report.
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Economic Fact Book: Denmark
Key macroeconomic indicators Outlook for key economic variables
Denmark - Outlook for key economic variables GDP (1)
Denmark
CPI (1)
Unemployment (2)
2015 2016 2015 2016
Govt. Budget (3)
Govt. Debt (3)
2015
2016
2015
2016
2015
2016
Danske Bank
1.6
2.0
0.6
1.5
4.9
4.7
-2.4
-2.4
42.5
43.0
IMF
1.8
1.9
1.6
1.8
6.6
6.2
-3.0
-2.3
46.6
47.3
OECD
1.4
1.8
0.7
1.2
6.3
6.1
-2.2
-2.3
48.7
50.7
EU (Commission)
1.7 2.1 0.4 1.6 6.5 6.4 -2.8 -2.7 42.7 43.6 1)% %y/y y/y. 2) % of labour force (Danske Bank is forecasting the gross unemployment rate). 3) % of GDP. 1. 2. % of labour force (Danske Bank Markets forecasts the gross unemployment rate) 3. % of GDP Source: OECD (November), IMF (October) EU (February), Danske Bank (January)
Denmark vs the euro area (EMU) When
Denmark versus the euro area (EMU) Denmark EMU 0.3
GDP per capita (5)
When
Denmark
EMU
2013
45,100
29,500
2.5%
-
GDP(1)
Q4-14
0.4
Gov. consumption (2)
2014
26.4
21.0 Economic size relative to EMU (4)
Private cons (2)
Q4-14
48.4
55.9 Inflation - HICP (7)
Jan-15
-0.3
-0.6
Investments (2)
Q4-14
18.9
19.5 Public budget (2) EC fcst
2015
-2.8
-2.2
Exports (2)
Q4-14
53.6
44.8 Public debt (2) EC fcst
2015
42.7
94.4
Current account (2), (8)
Q3-14
6.5
2.3
Jan-15
0.63
1.14
Unemployment (3)
Dec-14
6.4
11.3
Households' financial liabilities (2)
2013
140
67
Long-term interest rates
Sovereign ratings S&P
AAA / stable
Moody's
Aaa / stable
Fitch
AAA / stable
Sovereign bond yields 2Y yield (6)
-0.15
10Y yield (6)
0.48
1: % % q/q q/q, 2: Pct of GDP , 3: % of labour force (LFS definition), 4: based on nominal GDP, 5: EUR per capita, 6: %, 3M av, 7: % y/y , 8: 4Q average 1. 2. % of GDP 3. % of labour force (LFS definition 4. Based on nominal GDP 5. EUR per capita 6. %, 3M average 7. % y/y 8. 4Q average Source: Eurostat, Statistics Denmark, ECB, Danmarks Nationalbank, Macrobond Financial, Danske Bank Markets
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Economic Fact Book: Denmark
Public finances Government budget deficit within the 3% limit
Government debt below the 60% limit
Source: European Economic Forecasts (EU forecasts)
Source: European Economic Forecasts (EU forecasts)
Government bond yields close to or below zero
Yield spreads to Germany close to or below zero
Source: Macrobond Financial
Source: Macrobond Financial
Monetary policy Record-low policy rates
Danish policy rates shadow ECB’s policy rates
Source: Danmarks Nationalbank
Source: Danmarks Nationalbank and ECB
Large increase in the FX reserves
Danmarks Nationalbank intervened for DKK168.7bn in February
Source: Statistics Denmark, Danmarks Nationalbank
Source: Danmarks Nationalbank
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Economic Fact Book: Denmark
Official band +/- 2.25% around 7.46038
De facto trading range is narrower
Source: Danmarks Nationalbank
Source: Danmarks Nationalbank
Large increase in the banks’ net position with Danmarks Nationalbank in recent months
FX reserves account for most of the central bank’s assets
Source: Danmarks Nationalbank
Source: Danmarks Nationalbank
National accounts Denmark has not recovered from the crisis yet
Large output gap
Source: Eurostat, Statistics Denmark, Danske Bank Markets
Source: Danish Economic Council
Private consumption has begun to increase slightly
Gross fixed capital formation still way below pre-crisis level
Source: Eurostat, Statistics Denmark and Danske Bank
Source: Eurostat, Statistics Denmark and Danske Bank
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Economic Fact Book: Denmark
Denmark is a very open economy
Danish business cycle tracks the euro area
Source: Eurostat, Statistics Denmark, Danske Bank Markets
Source: Eurostat, Statistics Denmark, Danske Bank Markets
Foreign trade Very large current account surplus – helps to explain the upward pressure on the Danish krone
Denmark has positive net foreign assets
Source: Eurostat, Statistics Denmark, Danske Bank Markets
Source: Statistics Denmark, Danmarks Nationalbank, Danske Bank Markets
Denmark is more export-oriented than most European countries
Denmark exports mainly to neighbouring countries – increasing exports to China
Source: Eurostat, Statistics Denmark, Danske Bank Markets
Source: Statistics Denmark, Danske Bank Markets
Large fall in the effective exchange rate due to the ECB’s QEannouncement
Industrial production remains sluggish
Source: Danmarks Nationalbank
Source: Eurostat, Statistics Denmark, Danske Bank Markets
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Economic Fact Book: Denmark
Survey indicators The economic outlook is better than suggested by the business confidence indicator
Consumer confidence back at pre-crisis level
Source: EU
Source: EU
Inflation and wages Danish inflation follows euro inflation
Positive real wage growth despite moderate nominal wage growth
Source: Eurostat, Statistics Denmark
Source: Statistics Denmark, Danske Bank Markets
Labour market and demographics Low unemployment rate compared with the euro area
Increasing employment
Source: Eurostat
Source: Eurostat
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Economic Fact Book: Denmark
Denmark lost competitiveness during the 2000s due to increasing labour costs
Stable work force in the future
Source: Eurostat
Source: Statistics Denmark, Danske Bank Markets
Housing market and construction The Danish housing market is recovering slowly
Large regional differences in the Danish housing market
Source: ECB, Statistics Denmark, Danske Bank Markets
Source: Statistics Denmark, Danske Bank Markets
Danish households’ gross debt is one of the highest in the world
Danish households’ have positive net assets
Source: Eurostat
Source: Statistics Denmark, Danske Bank Markets
No growth in loans to households
Interest-only, variable-rate mortgage loans have become the most popular loan type
Source: Danmarks Nationalbank
Source: Danmarks Nationalbank
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Economic Fact Book: Denmark
Disclosures This research report has been prepared by Danske Bank Markets, a division of Danske Bank A/S (‘Danske Bank’). The author of this research report is Mikael Olai Milhøj, Analyst. Analyst certification Each research analyst responsible for the content of this research report certifies that the views expressed in this research report accurately reflect the research analyst’s personal view about the financial instruments and issuers covered by the research report. Each responsible research analyst further certifies that no part of the compensation of the research analyst was, is or will be, directly or indirectly, related to the specific recommendations expressed in the research report. Regulation Danske Bank is authorised and subject to regulation by the Danish Financial Supervisory Authority and is subject to the rules and regulation of the relevant regulators in all other jurisdictions where it conducts business. Danske Bank is subject to limited regulation by the Financial Conduct Authority and the Prudential Regulation Authority (UK). Details on the extent of the regulation by the Financial Conduct Authority and the Prudential Regulation Authority are available from Danske Bank on request. The research reports of Danske Bank are prepared in accordance with the Danish Society of Financial Analysts’ rules of ethics and the recommendations of the Danish Securities Dealers Association. Conflicts of interest Danske Bank has established procedures to prevent conflicts of interest and to ensure the provision of highquality research based on research objectivity and independence. These procedures are documented in Danske Bank’s research policies. Employees within Danske Bank’s Research Departments have been instructed that any request that might impair the objectivity and independence of research shall be referred to Research Management and the Compliance Department. Danske Bank’s Research Departments are organised independently from and do not report to other business areas within Danske Bank. Research analysts are remunerated in part based on the overall profitability of Danske Bank, which includes investment banking revenues, but do not receive bonuses or other remuneration linked to specific corporate finance or debt capital transactions. Financial models and/or methodology used in this research report Calculations and presentations in this research report are based on standard econometric tools and methodology as well as publicly available statistics for each individual security, issuer and/or country. Documentation can be obtained from the authors on request. Risk warning Major risks connected with recommendations or opinions in this research report, including a sensitivity analysis of relevant assumptions, are stated throughout the text. Date of first publication See the front page of this research report for the date of first publication.
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