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Denmark Country Risk Report Q2 2016

Denmark Country Risk Report Q2 2016

Core Views

Real GDP growth in Denmark will continue to be supported by asteady improvement in external demand, mainly from the eurozone.However, the large debt burden of the private sector will restraingrowth over a multi-year horizon.

While Prime Minister Lars Lokke Rasmussen’s hardline nationaliststance towards Europe’s migration crisis has bolstered public supportfor the conservative right on Denmark’s political scene, we retainthe view that the government will remain unstable. The one-partyminority government will have a difficult time passing legislation,making it likely that the government will be ousted before its termends in 2019.

Major Forecast Changes

Taking into account the 0.4% q-o-q real GDP contraction in Q315,combined with inventory buildup in the quarter that is likely to reversein Q415 and Q116 (without inventories, the contraction would havebeen 0.6pp greater), we have revised down our 2016 real GDPgrowth forecast to 1.2% from 1.7%.


Executive Summary
Core Views
Major Forecast Changes
Key Risks
Chapter 1: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Debt Burden To Hinder Growth
Denmark's economy will experience modestly above-trend growth in 2016 and 2017, alongside an acceleration in the eurozone.
However, long-term growth will remain weak as the private sector slowly pays down its sizeable debt burden.
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Monetary Policy
Policy Normalisation Is Years Away
The Danish central bank (Danmarks Nationalbank) will maintain its benchmark certificates of deposit interest rate at -0.65% until the end
of 2016 as it braces for further European Central Bank easing. Although speculative attacks on the krone's peg to the euro have abated,
Danish interest rates are likely to stay firmly negative for several years to come.
TABLE: MONETARY POLICY
Chapter 2: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Stability Risk As Immigration Policy Tightens
The rise of the populist, anti-immigration Danish People's Party and the weakness of the ruling Liberal party means that immigration
policy is likely to become increasingly stringent, while the country will maintain a eurosceptic stance. We anticipate that the government
will collapse at some point in the next few years, ahead of the expiry of its full term in 2019.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Reform Of Welfare State Key Issue Over Coming Decade
Denmark will experience broad political stability over the coming decade, but changes to the welfare state will see divisions emerge
between left and right, and old and young. Meanwhile, opposition to immigration will increase. The government will continue to face
demands from Greenland for full independence, although this scenario will not play out in our 10-year forecast period to 2025.
Chapter 3: BMI Global Macro Outlook
Global Macro Outlook
Downside Risks Gather Momentum
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
TABLE: MACROECONOMIC DATA & FORECASTS

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