Denmark's economy - anything but "Nordic noir"

Jonathan Boyd
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Denmark's economy - anything but "Nordic noir"

Denmark is currently one of the most economically successful countries on the European Continent. Economic growth at 1.1% in 2016, and probably 1.7% this year, is rather moderate. However, gross domestic product in 2015 was already at a high level at just under €48,000 per capita (versus Germany on €37,100). Denmark has a problem that other countries only dream of: unemployment is so low that companies are increasingly having problems finding suitable employees.

The economic structure of Denmark is characterised by a mostly medium-sized industrial and service companies, which are often highly specialised and technologically ‘top of the class’.

That is one the reason why high specialised employees are so urgently requested. Examples of well know companies are Novo Nordisk (pharmaceutical industry) , Bang & Olufsen (entertainment electronics), Vestas (wind energy), Danfoss (heating and cooling energy) and Lego (toys). Traditionally, Denmark is also active in shipping (A.P. Møller-Mærsk), in the food sector (Arla) and in the brewery sector (Carlsberg).

“Investors enjoy the benefits of a stable and relatively predictable legislation and judicial system in the Nordic countries. The legislation is transparent and corruption is low,” says David Bakkegaard Karsbøl, chief strategist at the Danish investment boutique Sparinvest.

The Danish economy has been improving considerably in the years after the eurozone crisis of 2011-2014. The unemployment rate has come down to 3.5% and GDP growth is now running at 2.7%.

Since the Danish economy is small and open, it is quite dependent on developments in surrounding economies.

“The major trading partners are Germany, Sweden, the UK and the US. Denmark has been running almost constant trade surpluses since adoption of the currency peg to the D-mark in 1982,” says Karsbøl.

Danish companies have been well-positioned after the crises where especially healthcare stocks have performed well. The Danish banking system is somewhat more solid than in most other European countries, so the financing of Danish companies has been less volatile.

That offers attractive investment opportunities.

“Some of the most interesting cases in Denmark would be mortgage bonds that are AAA-rated and still manage to deliver a higher carry than most other high-grade bonds in Europe”, says Karsbøl.

Danish mortgage bonds have performed extremely well over the past couple of years, but they are generally still attractive compared to other segments of the European high-grade debt markets.

Danish interest rates are very low because Denmark is regarded as a safe haven with stable politics and a stable currency with (if anything) a built-in call option in the case of appreciation. Nevertheless, Denmark is of course not an “island of the blessed”.

Because the real estate market is getting more and more “heated”, housing prices are climbing constantly. This is mainly due to the negative interest rates in Denmark as well as in the euro area, although on a much more drastic scale.

All this happens against the background that no people in Europe have financed their apartments with as much credit as the Danes. This may be problematic when interest rates rise again.

Germany is the most important trade partner of Denmark.

“But there are several differences between Denmark and Germany. On a cultural level, Danes are considerably more anti-authoritarian than employees in most other countries. Danish corporate culture and organisations are thus also considerably less hierarchical than, for example, German organizations,” says Karsbøl .

Denmark has virtually no heavy industries anymore as the shipyards were closed in the 1980s and most of production takes the form of various services, although the agricultural sector is still large in Denmark.

Considering “green energy”, Denmark is a pioneer when it comes to tightening CO2 savings, with a target of 40% savings set to be achieved by 2020 compared to 1990 levels. The share of renewable energ in electricity generation now amounts to well over 50%. Wind power alone represents over 40% of electricity generation.

“There are no nuclear power stations in Denmark. The German `Energiewende` is attentively followed,”  Karsbøl notes.

This is part 3 of a series on the Nordic markets

Sparinvest features at the Nordic Investment Managers Forum in Luxembourg on 26 October. For further information visit www.nimf.lu

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