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 19 March 2024.

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.

For the updated report accompanying this review, click here.

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 in the context of the energy crisis following the escalation of the Russia-Ukraine war – and they provide the government with fiscal space to support the economy with appropriate countercyclical fiscal measures.

After real GDP growth of 6.8% in 2021 and 2.7% in 2022 following the Covid-19 pandemic, the Danish economy proved resilient during 2023, with economic output growing by 1.8% despite higher inflation and rising interest rates. Economic growth was mostly driven by a buoyant performance of the pharmaceutical sector, supporting the industrial production and export activities. However, GDP excluding the pharmaceutical industry fell by 0.1% in 2023, as other manufacturing industries suffered more from the economic headwinds. Going forward, Scope expects the Danish economy to recover also outside of the pharmaceutical sector, projecting real GDP growth at 2% in 2024 and 1.9% in 2025. This will be supported by declining inflation, expectations of interest rate cuts, and solid real wage growth, which will foster purchasing power and therefore private consumption. By 2028, Scope expects real GDP to converge towards a potential growth rate of 1.5%.

Scope expects the general government headline balance to remain in surplus at around 2.2% in 2024 and 1.3% of GDP in 2025, and the debt-to-GDP ratio to remain below 30% over the medium-term, despite rising spending pressures from an ageing population and investment needs. The recently approved tax reform, expected to be implemented starting in 2025, aims at reducing fiscal pressures on workers, raising the incentive to work, and increasing the country’s workforce.

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

The Stable Outlook reflects Scope’s view that risks to the ratings are balanced.

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 the government debt-to-GDP ratio.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Rating Methodology, 29 January 2024) 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 Alessandra Poli, Analyst

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