Denmark’s looking good, but don’t ignore the global context, says finance minister

Things are looking up in Denmark.

It might not yet be quite as set in stone as Christmas, but Nordea Market’s fifth annual symposium on the Danish economy and government debt is establishing a foothold in the calendar. And once again, the Danish finance minister graced us with his presence.

 

The three wise men; Lars Mayland Nielsen, Danmarks Nationalbank, Helge J. Pedersen, Nordea and Finance Minister, Kristian Jensen.

 

Things are looking up in Denmark. That’s the rosy scenario at least that Danish minister of finance Kristian Jensen outlined at last month’s fifth symposium on the state of the Danish economy.

Jensen pointed to the robustness of the three key parameters of economic health.

Firstly, GDP growth was at a steady 1,7% for both 2018 and 2019 and an expected 1,6% for 2020, driven by private consumption and investments.

Second, employment is at a record high with some 2.765 million people  employed as of October 2018 and since the election in 2015 some 153,100 new private-sector jobs have been added.

Finally, the rate of unemployment is anchored at 3.9%, the lowest in ten years.

Controlled boom


Jensen was also keen to emphasise that Denmark’s current good health is a controlled boom within a sustainable framework. That is not to say, however, that he was without caveats. Last summer’s drought, first example, caught the agriculture sector unawares and that will impact BNP growth. There was also the anomaly of a large patent sale in 2017 that will impact the 2018 GDP numbers.

 

Finance Minister Kristian Jensen speaks at Nordea Government Debt Symposium

 

 

Economics is not particularly difficult, the minister said, adding that BNP is at heart a simple formula: “How much you work times how intelligently you work”. With that in mind, Jensen said we need to address that Denmark has 700,000 adults aged 15 to pensionable age that are not in employment and for any Danish government that can never be a satisfactory number. Looking ahead, we still see an increase in employment, even if we are at high levels, but what is interesting is that there is a minimal impact on inflation.

The high employment rate is due to successful political reforms, continuously implemented since 2006, he said. These political reforms have strengthened Danish economy and increased employment and strengthen the finances of the public sector. But a consequence is that political reform has created new jobs, but the shortage of labour is a concern that could hamper continued growth.

Foreign labour has and still can, contribute to continued growth, but the labour shortage is not only a Danish issue, it’s an issue across the EU. We are seeing wages and other compensation increase in EU countries that historically supplied Denmark with labour. Romania, for example, is experiencing the largest salary increases in Europe. This proves it is more challenging for Denmark to attract foreign labour.  This challenge requires political will, to create new reforms that can prolong economic growth and maintain the high employment rate.

 

Bigger picture


The finance minister also provided a view on developments outside of Scandinavia, echoing the concerns outlined in the opening remarks by symposium moderator, Helge Pedersen, Chief Economist at Nordea. Many EU countries have high public debt and consolidation after the financial crisis is far from complete with the high-profile case of Italy hogging the limelight with a whopping budget deficit at 130% debt of GDP, according to Eurostat.

But the minister asked his audience to look beyond Italy’s travails at the bigger picture with France already running a 100% budget deficit, according to Eurostat, amid an economic boom climate and with mounting pressure from the so-called ‘yellow-vest’ movement that could further exacerbate the debt equation.

Jensen still stuck to the line that 2019 ought to be a good year given the accommodative monetary policy in Europe and an expansive fiscal policy in the US, but highlighted risks that need monitoring.

  1. Increased geopolitical tensions and risk of escalating trade wars
  2. A lack of resolution to the Brexit crisis
  3. The potential for financial turmoil in the wake of the global easing of monetary policy.
  4. The ongoing requirement for fiscal consolidation in many EU countries

 

Lars Mayland Nielsen, Head of Sovereign Debt, Danmarks Nationalbank

 

As far as the economy was concerned, there wasn’t an argument to be had from Lars Mayland Nielsen who also pointed to the good health of the Danish economy in his address to the symposium.

Nielsen, head of sovereign debt at Danmarks Nationalbank, sketched a clear vision for the bonds space ahead, centred on three main pillars:

  • Unchanged targets for sales
  • A focus on 2- and 10-year bonds
  • New financing of social housing to underpin the government bond market

 

Great Demand


Looking at the debt side, Nielsen concluded that there is a great demand for index bonds and the average auction sale generates around 2.5 billion Danish kr. The target for sales of domestic government bonds and T-bills in 2019 is DK65 billion and DK30 billion, respectively. The target for 2019 is thus unchanged from the previous year. The issuance will be evenly distributed over the year with the target of raising DK2.5 billion per auction.

Nielsen also talked up a new 10-year bond issue which takes place on January 23, with maturity in November 2029. The bond will be build up to at least DK80 billion over a two-year period. In addition, a new two-year bond with maturity in 2022 will be opened in the first half of the year. The aim is to build up the bond to at least DK50 billion over a two-year period.

 

Nordea Government Debt Symposium, Lars Mayland Nielsen, Danmarks Nationalbank

 

Social housing


Nielsen also shared that the government will continue to buy bonds for financing of social housing of around DK50 billion. This is expected to save money for the central government and enable a build-up of more liquid government bonds. In recent times, social housing has mainly been financed through mortgage bonds comprising mortgage loans for both social and private sector housing.

 

Final word


That left the final word to Pedersen who, after adeptly handling a Q&A session with a lively audience of more than 50 Nordea clients, was already looking forward to the sixth instalment of the symposium, slated for December 2019. While it might take a few years still to establish the event alongside those other traditions typically associated with the last month of the year, the symposium is well underway and with such a stellar casting list, that’s something that can only be expected (even if we do say so ourselves!).

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