Stockholm: Denmark, home to the world's biggest household debt burden, won't lose its top credit rating anytime soon as stable public finances and a current account surplus offset the risks, Fitch Ratings and Standard & Poor's said.
"Denmark is not a country we are particularly worried about," Fitch Managing Director Edward Parker said in an interview in Stockholm yesterday. "We are not expecting over the near term to be taking negative action on Denmark."
Denmark, which is struggling to emerge from a burst housing bubble and regional banking crisis, is lagging behind its Scandinavian neighbours on economic growth and budget deficit reduction. Still, bond investors are rewarding the government for a public debt burden that's half the euro area's average and snapping up Denmark's debt. The Nordic country pays about 10 basis points less than Germany to borrow for 10 years.
Investors haven't been swayed by Denmark's record private debt burden, which at 310 per cent of disposable incomes in 2010 is the world's biggest, Exane BNP Paribas estimates. Instead, markets have focused on public debt in their hunt for havens.
"Household debt is not a ratings driver, per se," Per Tornqvist, an analyst at S&P based in Stockholm, said on Tuesday in an interview. "Denmark is still a manageable situation, particularly if you consider that this is a country that is exporting capital. A country that exports capital is not the country with the biggest challenges in today's world."
Rare rating
Denmark is one of only 12 nations in the world that still has an AAA rating at S&P, Moody's Investors Service and Fitch after France and Austria were cut at S&P last week. Prime Minister Helle Thorning-Schmidt, whose Social Democratic government won power in September, has said the Nordic country can't save its way out of the crisis and has moved forward investments worth 18.8 billion crowns (Dh11.71 billion) for this year and next.
The $300 billion economy will grow 1 per cent this year and in 2013, according to Danske Bank, the country's biggest lender. The economy shrank 0.5 per cent in the third quarter.
The budget deficit will swell to 5.5 per cent of gross domestic product this year from 4 per cent last year, the government estimates.
The current account surplus surged to a record 12.6 billion kroner in November.
Denmark, which has opted out of the euro though it pegs the crown to Europe's single currency, will have government debt of 45 per cent of GDP this year, compared with a euro-area average of 90 per cent, the European Commission said on Nov-ember 10.
Still, continued spending will undermine Denmark's public finances and leave the ratings companies with little alternative but to cut, according to Claus Caroe, a fund manager at Sparinvest.
Bond sale: uphill task for Italy, spain
The European Central Bank and domestic Italian and Spanish investors may need to buy as much as €121 billion (Dh565.60 billion) of debt this year as international investors curb holdings, Barclays said.
"The behaviour of foreign investors will likely remain key to the performance of the Spanish and Italian bond markets," Laurent Fransolet, head of fixed-income strategy at Barclays Capital in London, wrote in an emailed note yesterday.
Assuming non-euro investors don't reinvest returns on maturing debt, and non-domestic euro investors roll 50 per cent of their holdings, home investors and the ECB will need to cover about €80 billion of bonds, Fransolet wrote. They will also need to cover new supply amounting to €15 billion from Italy and €26 billion from Spain, he said in the report.
"Although this is substantial, it is not impossible," Fransolet said.
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