Denmark`s economy – anything but “nordic noir”

October 23, 2017

Denmark is currently one of the most economically successful countries on the European continent. Although the economy is growing at 1.1 percent in 2016 and probably 1.7 percent this year is rather moderate. However, the gross domestic product in 2015 was already at a very high level with just under 48,000 euros per capita (Germany: 37,100). Denmark has a problem that other countries are dreaming of: unemployment is so low that companies are increasingly having problems finding suitable employees.

The economic structure of Denmark is characterized by a mostly medium-sized industrial and service companies, which are often highly specialized and are technologically top of the class. That is one the reason why high specialized 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). TraditionallyDenmark 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 is improving considerably from the years after the Eurocrisis, 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 the development in the surrounding economies. “The major trade 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 David Bakkegaard 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 chances. “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 David Bakkegaard 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 build-in call option in the case of an appreciation. Nevertheless, Denmark is of course not an “island of the blessed”. Because the real estate market is getting more and more “heated”, the 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 has financed their apartments as strong on credit as the Danes. This can be problematic when the interest rates will 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 organizations are thus also considerably less hierarchical than e.g. German organizations”, says David Bakkegaard Karsbøl . Denmark has virtually no heavy industries anymore as the shipyards were closed in the eighties and most of our 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. In their own country, a saving of 40 percent should be achieved by 2020 compared to 1990. The share of renewable energies in electricity generation now amounts to well over 50 percent. Wind power alone represents over 40 percent of electricity generation. “There are no nuclear power stations in Denmark. The German `Energiewende` is attentively followed” says David Bakkegaard Karsbøl.