Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations.

Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for the Kingdom of Denmark (long-term local and foreign-currency issuer and senior unsecured debt ratings: AAA/Stable; short-term local- and foreign-currency issuer ratings: S-1+/Stable) on 11 April 2023.

This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated rating history can be found on www.scoperatings.com.

Key rating factors

The Kingdom of Denmark’s long-term AAA/Stable ratings are underpinned by the following credit strengths: i) the country’s wealthy and competitive economy; ii) sound public finances and a low level of public debt; iii) a solid external position, driven by consistent current-account surpluses; and iv) a strong institutional framework and stable governance. These factors increase the country’s resilience to economic shocks, including from the Covid-19 pandemic and rising inflationary pressures following the escalation of the Russia-Ukraine war, and provide the government with fiscal space to support the economy with appropriate countercyclical fiscal measures.

Economic output proved resilient during the Covid-19 pandemic, rebounding strongly by 4.9% in 2021 and 3.8% in 2022 after a shallow decline of 2.1% in 2020. Following the economic upswing of the past two years, slower growth should help gradually return the Danish economy to a more neutral cycle. Consumption is likely to remain weak in early 2023 due to lower household purchasing power, low consumer confidence and declining house prices. Rising wages will support private spending during the second half of 2023, helping offset weaker export growth. Scope expects moderate growth in the Danish economy, with GDP increasing by 0.6% in 2023, supported by production growth in the pharmaceutical sector. Scope expects economic output to grow by 1.1% in 2024, before returning to Denmark’s medium-term growth potential of around 1.5% per year in 2025.

Challenges relate to: i) banking sector vulnerabilities associated with high property prices; and ii) vulnerabilities in the Danish financial system, including from high levels of household debt.

The Stable Outlook reflects Scope’s view that risks to the ratings are balanced over the next 12 to 18 months.

The rating/Outlook could be downgraded if, individually or collectively: i) financial system risks increased and resulted in broader systemic risk, leading to the materialisation of contingent liabilities on the government’s balance sheet; ii) a severe economic shock resulted in a material decline in medium-term growth prospects; and/or iii) the fiscal outlook deteriorated, resulting in a significant upward trend in government debt-to-GDP ratios.

For the updated report accompanying this review, click here.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Ratings Methodology, 27 September 2022) is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst Eiko Sievert, Director

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