Nordea Markets had the pleasure of welcoming the Danish Minister of Finance, Kristian Jensen and the Danmarks Nationalbank’s Head of Sovereign Debt, Lars Mayland Nielsen to our Copenhagen office.
The symposium covered the state of Danish economy and focused on how the fiscal politics and sovereign debt is managed to adapt to the new economic climate with a buoyant economy and record low interest rates. Nordea Markets Chief Economist, Helge J. Pedersen, acting as the moderator, made a point of this being the first time Nordea had the pleasure of welcoming the same Danish Minister of Finance to two consecutive Nordea symposiums. Minister Jensen was quick to respond by stating; that staying firmly behind one’s own economic theory and not being willing adapt to changes in the economy could have a negative impact to the length of ones career as Minister of Finance. Kristian Jensen thereby assured the audience that the acting Danish government would adapt their economic policy to reflect current challenges facing the Danish economy at the time rather than enforcing any given economic theory.
The Minister of Finance made a point of how employment rates have been a better indicator of the state of the economy rather than, solely base the state of Denmark’s economy on GDP figures. Addressing the subject in a lighter touch, the audience were offered a crash course in economic policy, when the Minister stated that a country’s prosperity could be made up by the equation; how much you work X (times) how intelligently you work.
The Minister of Finance presentation was filled with evidence of the positive momentum in the Danish economy also fuelled by positive economic development in countries important for Danish exports, but also introduced some concerns in regard to how the momentum could be sustained.
Supply shortage in the Danish workforce
The shortage of supply in the workforce in the industrial, construction and service sector is a concern. Minister Jensen stated the government is working actively to address the concern and made a note that too many businesses are forced to decline orders and assignment as they risk not being able to meet orders given the shortage of the workforce.
The Minister of Finance presented five focus areas to increase employment further:
- Earlier entry to the workforce for the young
- Fewer that rely on support from public sector
- More seniors who choose to remain in the workforce
- Increase the average hours of work
- International recruitment
To learn more on the development on employment in the Nordic countries, please see our latest report.
The housing market was not left out of the economic update as we learned that pricing is still going up and in particular in Copenhagen given that approximately 1000 individuals per month move to the capital. The Minister of finance believed that Copenhagen has the ability to adapt and supply the housing demand but the current housing policy for Copenhagen is a limitation. Pricing has not yet reached the levels of Stockholm and Berlin but the government are monitoring the situation closely. For further reading on the Nordic housing market we recommend our latest report.
Development of the global economy
The minister of Finance also shared his view on the development of the global economy, here summarised in bullet points:
- Global growth as employment and trade show continued strength
- Balanced risks:
- Positive expectations amongst consumers and businesses continue to support growth
- Trade consequences of Brexit and renegotiations of NAFTA
- The pace of normalisation of fiscal policy in the US and EU
The Minister of Finance’s presentation was followed by Lars Mayland Nielsen, Head of Sovereign Debt at the Danmarks Nationalbank. After a review of 2017 which confirmed that sales of government bonds have been in line with expectations (65 billion DKK), the audience also learnt that the sales target for Danish Government bonds for 2018 is 65 billion DKK, and for Treasury bills the target is 30 billion DKK. In 2018, the Danmarks Nationalbank will focus on 2 and 10 year bonds and will also introduce a new index bond. The funding of subsidised housing will primarily be driven by withdrawal on the cash account.
The new primary dealer model will continue in 2018
Mr Nielsen explained that the primary dealer model with enhanced requirements and payments has strengthened the market for Danish government securities. That is the rationale for maintaining the model with payments in 2018. The model has contributed to a more liquid market for government securities and hence to lower financing costs for the central government. Liquidity has been increased through narrower bid-ask spreads and a higher number of banks actively trading Danish government securities.
Primary dealer contracts are concluded with banks that intend to enter into long-term cooperation to trade and resell Danish government bonds to a broad range of investors. Nordea is primary dealer in both Danish government bonds and Treasury bills. The obligation of a primary dealer is to act as a counterpart at auctions of government securities and support liquidity by quoting prices in the secondary market. Mr Nielsen also concluded that the Danmarks Nationalbank will continue to be active in the secondary market continuing the trend initiated mid-2015 and saw no reason be less active going forward.
Nordea Chief Economist, Helge J. Pedersen led a vibrant Q&A session that put emphasis on the ongoing discussions on the tough negotiation climate within the Danish government when it came to the budget for 2018. Clients were also interested in learning more about the funding structure for government debt.
In a reflection Mr Pedersen noted that the Finance minister confirmed Nordea’s own view about the current strength of the Danish economy and that the sovereign debt office is doing what it can to ensure liquidity in the government bond market. This comes at a critical juncture where the issuance need is very low due to the poor financing requirement of the Danish government. Mr. Pedersen thanked the clients for their participation and hoped to see them back at next year’s symposium.
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