Moody's: Denmark's strong credit profile underpinned by improving economy and low public debt

The strengthening economy and continued robust public finances support Denmark's (Aaa stable) credit profile, says Moody's Investors Service in a new report. It notes that the two structural features that differentiate Denmark from many of its Aaa-rated European peers -- highly indebted households and a very large financial sector -- imply some vulnerabilities for the economy, but Moody's believes that these will remain manageable.

Moody's annual Denmark Credit Analysis is available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release. The rating agency's report is an update to the markets and does not constitute a rating action.

Moody's forecasts that Denmark's real GDP growth will accelerate to 2.1% next year, from 1.7% this year. Private consumption is supported by record-low interest rates and a recovering housing market, while exports benefit from favourable exchange-rate developments vis-à-vis non-euro trading partners. "We anticipated that Denmark's growth performance will be stronger than many of its Aaa-rated European peers, although developments in the euro area, Denmark's main export destination, may pose a risk to the growth outlook," says Kathrin Muehlbronner, a Senior Vice President at Moody's and author of the report.

"At the same time, we will closely monitor wage growth and other indicators of labour shortages as signs for an overheating domestic economy, given indications that the labour market is tight and wage growth is accelerating", she says.

Moody's notes that Denmark's fiscal position remains strong, despite the headline budget deficit likely to be close to 3% of GDP this year and not much lower next year. Moody's believes that the budget deficit will continue to decline in the coming years given the economic recovery under way. The rating agency considers Denmark's focus of fiscal policy on the medium term and on the underlying structural budget balance to be appropriate and credible. The government's debt burden is low at below 45% of GDP, and much lower if the government's sizeable liquid assets are taken into account. The government's debt burden is also highly affordable, with less than 3% of general government revenues required for debt interest payments.