Rating action

Scope Ratings GmbH (Scope) has today affirmed the Kingdom of Denmark’s long-term issuer and senior unsecured debt ratings at AAA in both local and foreign currency and maintained the Stable Outlook. The short-term issuer rating has been affirmed at S-1+ in both local and foreign currency with Stable Outlook.

The affirmation of Denmark’s credit ratings is underpinned by the following credit strenghts: 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 enhance the country’s resilience to economic shocks and provide the government with fiscal space to support the economy through appropriate countercyclical fiscal measures.

The main credit challenges relate to i) vulnerabilities in the Danish financial system, including from high household debt, although partially mitigated by high levels of households’ assets; and ii) financial system vulnerabilities related to property prices fluctuations.

For the updated rating report, click here.

Key rating drivers

A wealthy, resilient and competitive economy. The Danish economy proved resilient in the past three years, with real GDP growing by almost 3% on average between 2022 and 2024, despite higher inflation and rising interest rates. Annual real GDP growth reached 3.7% in 2024, driven by declining inflation which supported domestic demand, alongside buoyant performance of the pharmaceutical sector. This contributed by just over a half to the annual growth, fostering industrial production and export activities. Economic activity gradually recovered also outside the pharmaceutical and export sectors, reflected also in a continued solid increase in employment.

Denmark’s economy is therefore well prepared to withstand the current heightened global trade uncertainty. As an open, export-oriented economy, with many companies deeply integrated in the global supply chain, the Danish economy is potentially vulnerable to external shocks. Moreover, the US represents a key trading partner. Good exports to the US accounted for around 8% of GDP in 2024. Out of DKK 248.6bn goods exported to the US, however, DKK 185.2bn (75% of total), were produced overseas and did not cross the Danish border¹. This helps to mitigate the impact of higher tariffs. Nevertheless, a prolonged uncertainty on global trade policy is likely to hinder household consumption and business investments. Together with the economic slowdown in major EU trading partners, such as Germany, these factors pose challenges for Denmark’s economy in the next years. Scope expects real GDP growth to remain robust at 3% in 2025, on the back of low inflation and declining interest rates, supporting households and companies’ financial conditions. The reopening of the Tyra gas field in the North Sea will also contribute to growth. Scope also projects a lower GDP growth of 1.7% in 2026, amid a normalization of the contribution from the pharmaceutical sector, before converging to 1.5% medium-run growth potential.

Denmark’s resilience is supported by a highly competitive and flexible labour market. The employment rate remained high at 77% in Q1 2025 – slightly below the record-high 77.5% reached in Q2 2024 – continuing to be supported by increased employment among young and older people, resident immigrants and a large influx of international workers, which accounts for more than 13% of total employment. The tight labour market has led to a strong rise in wages, also in real terms given the declining inflation. Scope expects the unemployment rate to remain moderate around 6% in 2025 and 2026, after having increased from 5.1% in 2023 to 6.2% in 2024. This was mostly due to the gradual normalization of economic growth, easing capacity and labour market pressures.

Inflation (HICP) remained around or below 2% in the first five months of 2025. It stood at 1.5% in May 2025, broadly aligned with core inflation and slightly above the 1.4% recorded in 2024, but below the euro area’s 1.9% inflation rate in the same month. Household and food prices continued to exert upward pressures on inflation, while service prices declined somewhat or recorded a modest increase. Scope expects the inflation rate to remain below the 2% target, at 1.8% in 2025 and 1.7% in 2026. Rising wage costs and the recovery of private consumption are likely to exert some upward pressures on prices, partially offsetting limited movements in food and services prices. As the euro area monetary policy targets an inflation rate of 2% over the medium term, the fixed-exchange-rate policy provides a framework for returning inflation to a low and stable level. However, limited monetary policy and exchange rate flexibility restrict the central bank’s ability to address financial imbalances, control the money supply and take unconventional measures such as quantitative easing. Danmarks Nationalbank cut its deposit rate by 25bps in June 2025 to 1.6%. This followed the ECB’s decision to cut the interest rate on deposit facility to 2% in the same month, leaving the differential between the two rates unchanged.

Sound public finances, low public debt, excellent market access. General government finances have been in surplus for the past seven years, with an average headline fiscal balance at almost 3% of GDP. This was supported by a dynamic and robust labour market with elevated structural employment, as well as competitive business environment, resulting in high structural revenues from corporate, personal income and income from shares taxes. The comfortable fiscal position is also reflected in public financial assets currently estimated at 25.75% of GDP. Fiscal policy was significantly tightened in 2022 and 2023 in response to strong demand pressures and elevated inflation. The rise in economic output, easing capacity pressures, and slowing inflation created room to use Denmark’s substantial fiscal space without putting significant pressures on wages and prices.

The government has started to ease fiscal policy, focusing on key priorities such as increasing military and defence spending, fostering the green transition, raising welfare resources and reducing fiscal pressures on workers. To rapidly raise military and defence spending and effectively strengthen national security, the Danish government established in February 2025 an Acceleration Fund, as part of the Agreement on Strengthening the Armed Forces’ combat power. The new fund allocates DKK 25bn annually in 2025 and 2026 – for a total of DKK 50bn, or 1.7% of 2024 GDP – to enable the acquisition of military capabilities, improve intelligence and surveillance and effectively strengthen national defence. On top of the DKK 50bn, DKK 10bn will be earmarked to cover expenses arising from decisions initiated by the Acceleration Fund. The annual fiscal impact of the Acceleration Fund is estimated at 0.8pp in 2025 and 0.1pp in 2026 and it is likely to bring both additional public investments for DKK 15bn and public consumption for DKK 5bn². With this initiative, Denmark will allocate more than 3% of GDP to defence spending both in 2025 and 2026. Denmark’s long term fiscal outlook is supported by its forward-looking pension policies given its ageing population. Moreover, the government retains budget flexibility to mitigate cost pressures related to health and long-term care. The retirement age, currently at 67, is expected to rise to 68 by 2030, after which it will be linked to future increases in life expectancy. On this basis, Scope projects the headline fiscal balance to remain in surplus of 1.8% in 2025 and 1.4% in 2026, before turning to a small fiscal deficit by 2029. Scope also projects the debt-to-GDP ratio to decline to 28.9% this year, from 31.1% in 2024, remaining well below the pre-pandemic level of 33.7% of GDP, before reaching 25.8% by 2030.

In addition, the government retains significant financing flexibility through its liquidity buffer of DKK 265bn (around 9% of GDP) as of May 2025, well above the target band of DKK 50bn-75bn. The buffer supports the government’s efforts to maintain stable issuance volumes to investors and allows for some flexibility should market conditions result in a lower issuance than planned. The target for sales of domestic government bonds and short-term loan programmes in 2025 amounts to DKK 65bn (or 2.3% of GDP) and DKK 25bn (0.8% of GDP) respectively³.

Solid external position and regional safe haven. Denmark’s AAA ratings are further supported by its solid external position with current-account surpluses driven by large financial sector, very high domestic savings and strong exports of high-value goods and services resulting in a net international investment position of 72.2% of GDP as of Q4 2024, up from -5% in 2008. The IMF projects the current account surplus to remain around 12% of GDP on average in the next five years, likely to be supported by a robust performance of the pharmaceutical sector, the reopening of the Tyra gas field, although facing some headwinds due to the shift in the US trade policy and slowdown in global economic activity. Danish external debt increased from 133% of GDP in 2023 to 142% in 2024 but remained well below 2010 highs of 1855 of GDP. Most of Danish external debt relates to financial institutions sector (74% of GDP as of 2024), followed by intercompany lending (33% of GDP). Both short-term debt (65.1% of GDP) and long-term debt (77.2% of GDP) remain low by historical comparison.

Denmark’s central bank has intervened repeatedly in foreign-exchange markets since October 2019 to support the krone's peg to the euro. It has succeeded in maintaining the peg in line with its primary mandate. Denmark’s credible commitment to maintaining its fixed exchange rate is backed by its large official reserves, totalling DKK 675.4bn (22.8% of 2024 GDP) as of June 2025. While the krone is not considered a global reserve currency, Scope assesses it positively as a regional safe-haven currency due to the longstanding exchange rate peg.

Rating challenges: high household debt and financial system vulnerabilities related to property prices fluctuations

Household debt level is one of the highest among rated peers, at 187% of net disposable income in 2024, although declining from 305% peak in 2008. With mortgage loans accounting for almost 80% of lending to households and businesses, high levels of debt increase vulnerability to high interest rates, higher unemployment and sharp declines in house prices. Danmarks Nationalbank has recently highlighted that growth in total bank and mortgage lending to Danish homeowners has been increasing moderately, but lending continues to represent a declining share of household disposable income. This reflects income growing faster than debt in recent years, alongside widespread mortgage refinancing. Denmark’s mortgage system allows borrowers to call fixed-rate bonds at any time. As long-term interest rates rose and bond prices fell, many homeowners refinanced at higher rates but with reduced outstanding debt. Despite the decreasing share of household lending, homebuyers continue to allocate a significant share of their income to debt servicing, especially in large urban areas. High debt service-to-income ratio leave less budget room for unexpected expenses. Moreover, the increasing proportion of variable rate mortgages in recent years for households and private non-financial institutions – accounting for around 63% of total mortgage lending to these counterparties in June 2025 – and the widespread use of interest-only loans amplify the negative impact of high interest rates.

However, these risks must be viewed in the context of a strong labour market, Denmark’s generous social security system, providing a strong safety net against short-term income shocks, as well as very high levels of household assets. Danish households own a large asset base in the form of real estate, pension savings and bank deposits. Total net worth is the highest among OECD countries, amounting to 842% of net disposable income in 2023.

Denmark’s banking sector is highly exposed to the real estate sector, including commercial real estate. Lending to real estate companies accounts for around 40% of total credit institutions lending and has grown moderately by around 6% in the past year. Large exposure to commercial real estate companies remains a vulnerability for Danish banks and has previously resulted in large losses. The sharp reduction in property values in 2022 and 2023 following multiple interest rate hikes led to a significant reduction in commercial real estate activities and reduced property companies’ earnings. Nevertheless, property transaction activities started to pick up again in the first four months of 2025. In addition, prices for single-family houses and owner-occupied flats fell by 6.6% and 7%, respectively, in Q4 2022 compared to the peak in Q2 the same year. Since then, one-family houses and owner-occupied flat prices have started to gradually recover, being 1.9% and 4.9%, respectively, in Q1 2025 above the 2022 peak and more than 20% above pre-Covid levels.

Properties tend to be mortgaged through mortgage credit institutions and Denmark’s high level of household savings and assets held in the pension system facilitated the development of the world’s largest mortgage-covered bond market. Mortgage banks’ real estate lending makes up around 50% of total Danish financial sector assets as of May 2025, while loans to real estate companies account for around 38% of credit institutions’ total lending to non-financial corporations. The country’s highly interconnected financial system of mortgage credit institutions, pension funds and insurance companies can expose the financial system to global CRE market volatility. The risk of credit losses in case of a large shock is significant for banks as they tend to provide the financing to mortgage banks which ranks the lowest in terms of the underlying collateral in case of a default.

Potential additional risks for Danish credit institutions stemming from the exposure to export-sensitive industries – such as the manufacturing sector, accounting for around 18% of large banks’ corporate lending – is mitigated by the large share of Danish good exports to the US produced overseas and not immediately affected by higher tariffs.

The banking sector has significant loss absorption capacity. The share of non-performing loans remained low and stable at 1.2% in Q4 2024 (compared to the euro area average of 1.9%), while regulatory Tier 1 capital to risk-weighted assets stood at 20% (compared to a 17.5% EU average). Profitability has improved given higher interest rates since mid-2022, which increased core earnings and strengthened banks’ first line of defence against losses. The latest central bank’s semi-annual stress test performed over 2025-27 showed that in a severe adverse scenario, involving significant global economic downturn, all institutions would meet the total risk-based capital requirements. However, some systemic credit institutions would fall short of capital buffer requirements by the end of 2027. In addition, some systemic credit institutions may find challenging to meet their total MREL requirement during an extended period of limited ability to issue new debt instruments⁴.

Rating-change drivers

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

Downside scenarios for the rating and Outlooks are (individually or collectively):

1. Increase in financial system risks resulting in broader systemic risks, which lead to the materialisation of contingent liabilities on the government’s balance sheet;
    
2. A significant and sustained deterioration in the medium-term economic and/or fiscal outlooks.

Sovereign Quantitative Model (SQM) and Qualitative Scorecard (QS)

Scope’s SQM, which assesses core sovereign credit fundamentals, signals a first indicative credit rating of ‘aaa’ for Denmark. Under Scope’s methodology, this initial indicative rating receives: i) no further adjustment from the methodological reserve-currency adjustment; and ii) no negative adjustment from the methodological political-risk quantitative adjustment. On such a basis, a final SQM quantitative rating of ‘aaa’ is assigned for Denmark and reviewed by the Qualitative Scorecard (QS) where this rating can be adjusted by up to three notches up or down depending on the significance of Denmark’s qualitative credit strengths or weaknesses compared against an SQM-assigned peer group of sovereigns.

Scope identified the following relative credit strengths of Denmark via the QS: i) macroeconomic stability and sustainability; ii) fiscal policy framework; iii) resilience to short-term shocks; iv) environmental factors and; v) governance factors. Conversely, no QS relative credit weaknesses were identified for Denmark against the sovereign’s peer group. On aggregate, the QS generates a two-notches positive adjustment for Denmark’s credit rating, concluding in final AAA long-term issuer ratings.

A rating committee has discussed and confirmed these results.

Environment, social and governance (ESG) factors

Scope explicitly factors in ESG issues in its ratings process via the sovereign-rating methodology’s stand-alone ESG sovereign-risk pillar, which holds a significant 25% weight under the quantitative model (SQM) and 20% weight under the methodology’s qualitative overlay (QS).

Environmental factors are explicitly considered in the rating process via the environment sub-category under the ESG risk pillar. Denmark receives high scores in SQM indicators measuring carbon emission per unit of GDP and exposure and vulnerability to natural disaster risks, but lower scores for greenhouse gas (GHG) emissions per capita. Scope assesses Denmark’s QS adjustment for ‘environmental factors’ as ‘strong’. The country aims to reduce GHG emissions by 70% by 2030 (relative to 1990 levels), reach carbon neutrality by 2050 and use 100% green gas in heating by 2030. The country has allocated almost 70% of its EU’s Recovery and Resilience Facility resources to green initiatives, well above the EU’s 37% target. Around 45% of energy consumption came from renewable sources in 2023. The Danish Council on Climate Change (DCCC) noted in February 2025 that the Danish government is likely to meet the lower limit of the 50% emissions reduction target by 2025. Moreover, the DCCC assessed that the government’s climate efforts make the 2030 target achievable. However, there is considerable uncertainty regarding emissions in 2030 and a further significant implementation effort is required to reach the target⁵. In June 2024, Denmark became the first country in the world to introduce a carbon tax on agricultural emissions, amounting to DKK 120 per ton of CO2 from 2030 and DKK 300 per ton in 2035, further supporting the achievement of the country’s GHG emission reductions targets.

For social factors captured under the SQM, Denmark benefits from low income inequality, high labour force participation, high GDP per capita and an advanced social safety net, which contributes to low income inequality. However, an elevated old-age dependency ratio places rising demands on welfare services, particularly healthcare. The integration of non-EU migrants is improving as observed by the narrowing gap of employment rates of ethnic Danes and foreign nationals. The government has taken several initiatives to address skill shortages in the labour market, raise productivity and increase labour supply implementing, among other measures, tax reductions for persons in employment to incentive people to work more.

Under governance-related factors captured in the SQM, Denmark scores well on a composite index of five World Bank Worldwide Governance Indicators, reflecting high quality institutions and a stable political environment. Prime Minister Mette Frederiksen leads a minority government following snap elections in November 2022. Minority governments, which require broad coalition-building to pass specific laws are common in Denmark, given the 2% threshold required to gain seats in parliament. Therefore, a long history of consensus-building supports long-term policy continuity.

Rating committee
The main points discussed by the rating committee were: i) domestic economic risk, including main growth drivers (e.g. pharmaceutical sector, exports and developments in other sectors); ii) latest public finance developments; iii) external economic risks, including developments in exports and potential impacts of US tariffs; iv) financial stability risks, including financial system risks, housing market developments and private sector debt; and v) peer developments.

Rating driver references
1. Statistics Denmark
2. Ministry of Economic Affairs
3. Danmarks Nationalbank
4. Danmarks Nationalbank
5. Danish Council on Climate Change

Methodology
The methodology used for these Credit Ratings and/or Outlooks, (Sovereign Rating Methodology, 27 January 2025), is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The model used for these Credit Ratings and/or Outlooks is (Sovereign Quantitative Model Version 4.0), available in Scope Ratings’ list of models, published under https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Credit Ratings were not requested by the Rated Entity or its Related Third Parties. The Credit Rating process was conducted:
With Rated Entity or Related Third Party Participation     YES
With access to internal documents                                   NO
With access to management                                            YES
The following substantially material sources of information were used to prepare the Credit Ratings: public domain and Scope Ratings’ internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and/or Outlooks and the principal grounds on which the Credit Ratings and/or Outlooks are based. Following that review, the Credit Ratings and/or Outlooks were not amended before being issued.

Regulatory disclosures
These Credit Ratings and/or Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlooks are UK-endorsed.
Lead analyst: Alessandra Poli, Analyst
Person responsible for approval of the Credit Ratings: Jakob Suwalski, Executive Director
The Credit Ratings/Outlooks were first released by Scope Ratings in January 2003. The Ratings/Outlooks were last updated on 6 September 2024.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use / exclusion of liability
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