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Rating Action:

Moody's affirms Denmark's Aaa issuer rating, stable outlook

24 Mar 2017

London, 24 March 2017 -- Moody's Investors Service has today affirmed Denmark's long-term issuer rating as well as its senior unsecured bond and program ratings at Aaa and (P)Aaa, respectively. The outlook remains stable. Concurrently, Moody's has also affirmed Denmark's short-term ratings at Prime-1 (P-1).

The key factors for today's rating action are:

1. Denmark's very sound public finances with low fiscal deficits and a low and declining debt ratio, which compare favourably to peers. The government's broader fiscal framework gives a high level of confidence that fiscal strength will be maintained over the long term, even in the face of an ageing population.

2. A very strong institutional framework with a long track record of proactive and forward-looking policy making.

3. Denmark's diversified and competitive economy with high per-capita GDP levels and a strong net external creditor position. Denmark's growth performance has been weaker than other EU countries over the past several years, but recent GDP revisions have narrowed the gap somewhat.

Denmark's long-term local- and foreign-currency bond and bank deposits country ceilings remain unchanged at Aaa. Its short-term foreign-currency bonds and bank deposits country ceilings also remain unchanged at Prime-1 (P-1).

A full list of affected ratings is provided towards the end of this press release.

RATINGS RATIONALE

RATIONALE FOR THE AFFIRMATION

FIRST FACTOR: VERY STRONG FISCAL METRICS WITH SMALL DEFICITS AND LOW DEBT LEVEL, WHICH COMPARE FAVORABLY WITH OTHER Aaa-RATED SOVEREIGNS

Even among its Aaa-rated peers, Denmark's public finances compare favourably. Budget deficits are consistently low, with the shortfall only once (in 2012 due to one-off measures related to the pension system at that time) exceeding the EU's 3% of GDP limit in the past 20 years. This has led to a low public debt ratio of around 38% of GDP at the end of 2016, compared to a peak of 46.1% in 2011. Deducting the government's cash balance at the central bank of more than 5% of GDP lowers the debt ratio even further. Moody's expects the debt-to-GDP ratio to continue to decline to around 35% of GDP by the end of this decade.

The debt burden is also highly affordable as the country's safe haven status has ensured low interest rates on government debt. Interest payments on the debt represent less than 3% of government's revenue and around 1.5% of GDP.

An additional strength is the focus on maintaining very low structural deficits with a medium-term perspective. Moody's considers this focus to be a strength, also because Denmark's headline budget balances are relatively volatile: in recent years revenues have been heavily influenced by changes in the taxation of pension schemes, volatile revenues from the pension yield tax as well as declining revenues from North Sea oil and gas production. The current fiscal rule requires the government to present a budget that ensures a structural deficit of 0.5% of GDP or lower, with the additional aim to achieve structural balance from 2025 onwards. In addition, the government introduced binding nominal expenditures ceilings in 2014, for all levels of government.

SECOND FACTOR: VERY STRONG INSTITUTIONAL FRAMEWORK WITH A LONG TRACK RECORD OF PROACTIVE AND FORWARD-LOOKING POLICY MAKING

Moody's considers Denmark's institutions to be highly credible and transparent, with predictable and forward-looking policy formulation and implementation. The main goal of Danish policymakers is to ensure that future generations will enjoy the same level of social welfare as current generations. Given the large scale of the Danish welfare system, this requires high employment levels so as to counteract the effects of an ageing population.

Economic and social policy is set with very high standards, conscientious long-term planning and responsiveness to challenges. Medium-term plans that successive governments have presented over the years, setting out the policy priorities for the next 10 years, are a prime example in this regard. Another example of forward-looking policymaking are the welfare, pension and labour market reforms that the government initiated over the past several years to counteract the expected reduction in the country's labour force. Denmark has ranked consistently at the top in terms of the quantitative Worldwide Governance indicators on government effectiveness, rule of law and control of corruption that Moody's uses in its sovereign rating approach.

THIRD FACTOR: VERY HIGH ECONOMIC STRENGTH UNDERPINNED BY HIGH WEALTH LEVELS AND WELL-DIVERSIFIED AND COMPETITIVE ECONOMY

Denmark's Aaa rating is also underpinned by the country's very high economic strength, the diversification and competitiveness of which is reflected in sustained current account surpluses of 7-9% of GDP in recent years. Danes' average incomes are high, and similar to other Nordic countries wealth is more evenly distributed than in most other countries. The economy is diversified, export-oriented and competitive, as reflected in international surveys and the composition of its exports.

Despite the upward revisions to national accounts figures, recent growth performance has been weaker than in Denmark's key trading partners like Sweden, Germany and the United States. Overall growth was dragged down by the strong decline in North Sea oil/gas output over recent years, which masked a somewhat stronger performance of the private-sector economy since the end of 2009. Another and more recent reason for Denmark's weak growth performance has been subdued global activity. As Denmark is a very open economy, with the sum of exports and imports accounting for approximately 100% of GDP, its growth performance is closely correlated to shifts in international economic activity.

On the positive side, Denmark's labour market has performed very strongly. Employment increased by around 5% between Q1 2013 and Q4 2016, reflecting the high degree of flexibility in Denmark's labour market and recent reforms to increase the supply of labour. The strong increase in employment in conjunction with relatively weak GDP growth implies weak productivity growth -- similar to other advanced economies -- although the productivity picture looks more benign now following the upward revision to growth. In absolute terms, Danish productivity levels are high in an international context.

More recently, growth has been picking up and Moody's expects the economy to grow in line with peers in the coming years. Real GDP growth averaged at close to 0.6% year-on-year in the first half of 2016, while the second half showed a significant acceleration to 1.7%. For 2017, Moody's expects Denmark's growth to accelerate further to 1.5% and close to 2% in 2018. Looking further ahead, an ageing population and a further reduction in North Sea oil and gas revenues are driving Danish policymakers to address productivity and competitiveness challenges, with a focus on creating incentives for moving from welfare to work and on increasing job creation by the end of the decade.

RATIONALE FOR THE STABLE OUTLOOK

The outlook on Denmark's Aaa rating is stable, given the unchanged very strong credit fundamentals and Moody's expectations that those strengths will be maintained over the medium term.

WHAT COULD RESULT IN A DOWNGRADE

While currently unlikely given the stable rating outlook, Denmark's Aaa rating would come under pressure if its strong fiscal metrics were to record a strong deterioration over several years with no indication of a reversal. As a very open economy, Denmark would also be particularly hard hit if strongly protectionist policies were to be implemented in key Danish export markets.

GDP per capita (PPP basis, US$): 45,723 (2015 Actual) (also known as Per Capita Income)

Real GDP growth (% change): 1.1% (2016 Actual) (also known as GDP Growth)

Inflation Rate (CPI, % change Dec/Dec): 0.3% (2016 Actual)

Gen. Gov. Financial Balance/GDP: -1.6% (2016 Estimate) (also known as Fiscal Balance)

Current Account Balance/GDP: 8.1% (2016 Actual) (also known as External Balance)

External debt/GDP: [not available]

Level of economic development: Very High level of economic resilience

Default history: No default events (on bonds or loans) have been recorded since 1983 (Moody's cut-off date).

On 21 March 2017, a rating committee was called to discuss the rating of the Denmark, Government of. The main points raised during the discussion were: The issuer's economic fundamentals, including its economic strength, have not materially changed. The issuer's institutional strength/ framework, have not materially changed. The issuer's fiscal or financial strength, including its debt profile, has not materially changed.

The principal methodology used in these ratings was Sovereign Bond Ratings published in December 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

The weighting of all rating factors is described in the methodology used in this credit rating action, if applicable.

LIST OF AFFECTED RATINGS

..Issuer: Denmark, Government of

....LT Issuer Rating, Affirmed at Aaa

....Senior Unsecured Regular Bond/Debenture, Affirmed at Aaa

....Senior Unsecured Medium-Term Note Program, Affirmed at (P)Aaa

....Commercial Paper, Affirmed at P-1

....Other Short Term , Affirmed at P-1

Outlook Actions:

..Issuer: Denmark, Government of

...Outlook, Remains Stable

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Kathrin Muehlbronner
Senior Vice President
Sovereign Risk Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Yves Lemay
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

No Related Data.
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