Reuters: US Dollar Report: Fitch Affirms Denmark at 'AAA'; Outlook Stable

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Fitch Affirms Denmark at 'AAA'; Outlook Stable Sep 4th 2013, 15:34 Wed Sep 4, 2013 11:34am EDT LONDON, September 04 (Fitch) Fitch Ratings has affirmed Denmark's Long-term foreign and local currency Issuer Default Ratings (IDR) at 'AAA' with a Stable Outlook. Fitch has simultaneously affirmed the Short-term foreign currency IDR at 'F1+' and the Country Ceiling for Denmark at 'AAA'. KEY RATING DRIVERS The affirmation and Stable Outlook reflect the following key rating factors: - The track record of macro-financial stability reflected in low and stable inflation, current account surpluses and the stable banking sector. - Public finances are in line with the 'AAA' median indicators with the EU definition of general government gross debt at 45.8% of GDP in 2012. The Danish government's track record of fiscal discipline strengthens the credibility of its fiscal strategy. Fitch expects the general government deficit to fall to 2% of GDP this year, albeit partly due to temporary revenues equivalent to around 1% of GDP. - Danish households' high level of indebtedness is a rating weakness (loans stood at 2x disposable income in 2012). Despite the sector's strong overall net asset position, this leverage combined with asset price falls has led to large swings in private consumption relative to most 'AAA' peers. House prices have dropped nearly 20% from their peak but appear to have bottomed out. - Although lacking a strong reserve currency status, the recent eurozone crisis demonstrated market confidence in Denmark's public finances and DKK assets, with large safe haven capital flows allowing the government to borrow at record low interest rates. A long average maturity of government debt and significant cash buffers reduce sovereign refinancing and interest rate risk. - Contingent risks arising from the banking sector have benefited from measures to improve bank supervision and the bank resolution framework since the crisis. The Fitch Banking System Indicator of 'a' indicates a banking system of high fundamental credit quality. The Macro-Prudential Indicator, which reflects the build-up of systemic risk, was recently revised down to '1' (low risk). - The economy has strong external finances with low net external debt, low net sovereign external debt, and a positive international investment position. At 5.7% of GDP in 2012, the current account surplus is also significantly higher than the 'AAA' median, reflecting Denmark's position as a strong export-oriented economy. - The rating remains supported by the relatively wealthy, high value-added and diverse economy. The severity of the 2009 recession and weak recovery led to a significant rise in unemployment, although structural unemployment is estimated to be moderate. - Denmark has strong and transparent institutions, which contribute to a stable political and economic environment, outperforming the 'AAA' rated medians in five out of six World Bank governance indicators. It also ranks very highly in the Ease of Doing Business index. RATING SENSITIVITIES The Outlook is Stable. Consequently, Fitch's sensitivity analysis does not currently anticipate developments with a high likelihood of leading to a rating change. However, future developments that could, individually or collectively, result in a downgrade include: - Protracted stagnation of the economy (for example due to household deleveraging and a further downturn in the housing market) accompanied by deteriorating public finances and worsening asset quality would be negative for the rating. Fitch considers the macroeconomic risks to be broadly balanced. - Erosion of the political consensus on fiscal strategy and long-standing commitment to fiscal discipline in Denmark. - A material worsening of the global economic outlook and/or intensification of the eurozone crisis. As a small open economy with extensive trade and financial linkages to the rest of the world and the eurozone, this would affect Denmark's economic recovery and potentially place pressure on public finances and the financial sector. KEY ASSUMPTIONS The ratings and Outlooks are sensitive to a number of assumptions. - Fitch's forecasts for the general government balance and debt level are based on the assumption that the government remains committed to its current fiscal strategy. - Fitch assumes there will be progress in deepening fiscal and financial integration at the eurozone level in line with commitments by policy makers. It also assumes that the risk of fragmentation of the eurozone remains low. Trade and financial linkages with the currency bloc are strong. - Fitch assumes domestic demand for Danish mortgage covered bonds continues to be strong given the necessity for predominantly domestic financial institutions, insurance companies and pension funds to hold highly liquid, high quality, securities in domestic currency. - The DKK currency peg to the euro remains in place. Contact: Primary Analyst Douglas Renwick Senior Director +44 20 3530 1045 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Eugene Chiam Research Analyst +44 20 3530 1512 Committee Chairperson Tony Stringer Managing Director +44 20 3530 1219 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria, 'Sovereign Rating Methodology' dated 13 August 2012 and 'Country Ceilings' dated 9 August 2013, are available at www.fitchratings.com. Applicable Criteria andALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Link this Share this Digg this Email Reprints

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