26-03-2024 09:22

Denmark’s finance minister: ‘We’re not yet out of the woods’

At a recent event for Nordea’s institutional clients, Danish Finance Minister Nicolai Wammen shared the economic outlook and the government’s 2030 reform plan, while Kristine Rasmussen from Danmarks Nationalbank discussed the country’s funding needs in the coming year.

Helge & Wammen portrait — Nordea Group Chief Economist Helge J. Pedersen (left) and Denmark's Finance Minister Nicolai Wammen (right)

The geopolitical uncertainty of the past few years is not likely to go away anytime soon but rather become the new normal. That was Danish Finance Minister Nicolai Wammen’s message to institutional clients at Nordea’s annual symposium on the Danish economy and national debt.

“The Danish economy is very solid, but we live in a world that can continue to be turbulent and unpredictable,” he said.

With its small, open economy, Denmark was able to emerge quickly and efficiently from the recent challenges, including the COVID-19 pandemic and the energy crisis. Wammen credited Denmark’s government and political parties for coming together swiftly to pass aid packages, arguing that, with a safety net in place, uncertainty for individuals and businesses was greatly reduced. During the energy crisis, the result was less money injected into the Danish economy and less sticky inflation, compared to some other countries.

Wammen noted that at the time of the same Nordea event in 2023, inflation was at 7.7%, compared to under 1% at the moment. He also highlighted Denmark’s strong public finances and low government debt.

The Danish economy is very solid, but we live in a world that can continue to be turbulent and unpredictable.

Nicolai Wammen, Denmark's Finance Minister

Helge J. Pedersen, Nordea Group Chief Economist; Kristine Rasmussen, Head of Monetary Policy Implementation and Government Debt at Danmarks Nationalbank; and Kamal Grossard-Amin, Head of DCM SSA Origination at Nordea

Investing in tomorrow

Wammen emphasised that now is not the time to rest on past successes. While the economy emerged in good shape out of the pandemic, growth is set to slow. The pharmaceutical industry is driving Denmark’s GDP growth, but the tempo in other sectors has gone down. Higher interest rates and continued geopolitical uncertainty contribute to lower expected growth.

Denmark’s labour market reached a historic milestone in 2023, with 3 million employed. However, there are signs that the labour market is starting to cool, said Wammen. He also noted that, without new reforms, employment is expected to come to a standstill, the challenge being how to increase the labour supply.

Wammen went on to lay out the government’s 2030 plan, which prioritises the green transition; welfare, including health and education; defence; and business.

On the green transition, Denmark is planning to become one of the first countries to introduce a CO2 tax on agricultural emissions. The country is also significantly boosting investments in defence and security, including military support to Ukraine and defence spending in line with NATO’s guideline of 2% of GDP.

“Historically, governments have made significant reforms that we are reaping the benefits from today. Our aim is to continue to do that,” he said.

Kristine Rasmussen, Head of Monetary Policy Implementation and Government Debt, Danmarks Nationalbank

A closer look at Denmark’s funding strategy

Kristine Rasmussen, Head of Monetary Policy Implementation and Government Debt at Danmarks Nationalbank, also took the stage to present on Denmark’s funding needs in 2024.

She emphasised Denmark’s sound public finances, low debt and reform-oriented policies – all of which underpin the country’s strong credit rating outlook.

One focus has been to broaden the investor base to ensure a well-functioning government bond market. She noted that the first syndicated transaction in Danish government bonds succeeded in increasing non-resident market participation. The increase in foreign investor participation stems largely from Europe and Asia, driven by long-term investors.

Rasmussen also pointed out how the low financing needs and absence of quantitative tightening in Denmark support a modest supply of government bonds compared to peers. The bond issuance target is set at a level less than 2.5% of GDP.

“So far in 2024, demand has been high and performance strong across tenors relative to peers,” she said.

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