Governor Lars Rohde's presentation at Djøf's Negotiator conference on status and prospects for the Danish economy

The pandemic has resulted in a two-speed economy: For example, activity has been low in the experience industry due to fears of infection and restrictions, while it has been high in, for example, the construction industry and in the housing market, where prices have increased significantly. The two-speed situation is also evident in the labour market, where employment has especially been affected in the service industries. Looking ahead, Danmarks Nationalbank expects that economic activity will quickly recover in line with the population being vaccinated and the restrictions being eased. (The presentation is in Danish only.)

Governor Per Callesen's speech at the Europa Think Tank's webinar on digital euro

Governor Per Callesen's speech on 23 April 2021 at the Europa Think Tank's webinar on the digital euro.

The IMF's analyses of the Danish economy

Following its recent Article IV mission in Denmark the International Monetary Fund, IMF, concludes that Denmark has successfully navigated through the crisis due to a strong and swift fiscal policy response and the fact that Denmark entered the pandemic on a solid economic footing. Going forward, the IMF recommends that economic policies continue to support the recovery while also facilitating a green and digital transition. At the same time the IMF recommends targeted polies to mitigate risks related to accelerating house price increases amid high and increasing household leverage.

Banks ready for expiry of government liquidity support

The banks are well equipped to make loans to viable corporations when the deferred tax payment deadlines and tax loans fall due. At the same time, the corporations' use of the relief packages have dropped to a low level. On this basis, it is assessed that the banks will be able to handle any deterioration in the creditworthiness of their customers on expiry of the relief packages.

Testing with ethical hackers continues in the financial sector

​​Danmarks Nationalbank and the individual participants in the TIBER-DK programme have decided to continue testing with ethical hackers in future. The decision is based on the good experiences with the tests, the purpose of which has been to strengthen cyber resilience and thus promote financial stability.

Passive and active global equity sub-funds yield almost the same returns

Since January 2020, active investment funds, investing in global equities, yielded an average return of 16 per cent, while passive funds yielded around 15 per cent.

Foreign Exchange and Liquidity and Monthly Balance Sheet, April 2021

​In April 2021, the foreign-exchange reserve decreased by kr. 7.9 billion to kr. 438.7 billion.

Oversight of the financial infrastructure 2020

The report presents the conclusions of Danmarks Nationalbank's oversight of the Danish payments infrastructure in 2020. The core payment and settlement systems and most important payment solutions extensively comply with international safety and efficiency standards. Efforts are continuously made to enhance the cyber resilience of systems/solutions. Due to the evolving nature of the cyber threat landscape, there is room for improvement – despite ongoing progress.

Record-breaking dividends sent abroad

Foreign investors are fond of Danish shares, and Danish listed companies paid dividends in March like never before. This meant record-breaking dividends for the foreign shareholders who owned Danish shares amounting to kr. 2,081 billion in March.

New shares for kr. 42 billion in first quarter of 2021

In the first quarter of 2021, the net issuance of listed Danish shares amounted to kr. 42 billion, driven mainly by Tryg's issuance of new shares. Price changes on existing shares amounted to kr. 39 billion in the same period. Thus, the total value of the Danish stock market rose to kr. 3,815 billion at the end of March 2021.

Corporate deposits fell sharply in March 2021

Since the start of the lockdown in March 2020, Danish companies have significantly increased their deposits in banks, but in March 2021, deposits fell by kr. 44 billion. This corresponds to a reduction of almost 10 per cent of the companies' total deposits, from kr. 445 billion in February 2021 to kr. 401 billion in March 2021.

Continued low rates on corporate bank debt

Over an extended period, interest rates on corporate bank debt have been declining. In March 2021, the average interest rate was 2.37 per cent, while it was above 4 per cent just seven years ago. However, the average interest rate on corporate debt in-creased marginally in March 2021.

Danes tap and pay

In the late summer of 2015, Dankort, the national debit card, was issued with a contactless function for the first time. Now 5.5 years later approximately 98 per cent of Dankort and VisaDankort cards allow contactless payments.

Low interest rates reflect fixed exchange rate policy and international conditions

The response of private customers to negative deposit rates

Negative deposit rates for household customers are now used by most banks in Denmark. Furthermore, the thresholds for when negative interest rates are payable have gradually been reduced. There are indications that household customers reduce their deposits when their bank announces negative interest rates. They also appear to react to the prospects of negative deposit rates by increasing their demand for investment fund shares and switching their deposits to pool schemes.

Working Paper: Nowcasting and forecasting economic activity in Denmark using payment system data

We show that payment system data can be used to improve forecasts of short-term changes in economic activity in Denmark. We compare the predictive performance of payment system data to a set of high‑frequency variables that includes industrial production and consumer prices, among many others.

Governor Signe Krogstrup's presentation at ESM seminar about climate change and debt sustainability

Governor Signe Krogstrup's presentation "Climate change and debt sustainability" at ESM seminar, 21 April 2021. The presentation addresses how climate change and the transition to a low-carbon economy can affect countries' debt levels and fiscal sustainability. A point made is that increased uncertainty about the future could result in budget deficits and higher interest rates.

Working Paper: Consumer good search: theory and evidence

When households search more for low prices on consumer goods, they lower firms' markups. The extent to which household search affects these markups fluctuates with the business cycle, which has been used in various macroeconomic models to generate pro-cyclical fluctuations in the markups. This Working Paper shows that it is difficult to align the basic underlying search model with the empirical differences in search between employed and unemployed individuals, and cautions against using these models in the context of business cycles.

Opening of 0.00 per cent bullet loan 2024

Working Paper: Monetary Policy Expectation Errors

We use survey expectations about future monetary policy to decompose excess returns on fed funds futures and overnight index swaps into a term premium and an expectation error component. We find that excess returns are primarily driven by expectation errors, while term premia are economically small and negative on average. Most expectation errors stem from market participants underestimating how aggressively the Federal Reserve has eased policy during the last three decades. Our findings reveal that market participants are continuously learning about the central bank's reaction function and have been slow to recognize the rising importance attributed to deteriorating financial conditions and falling stock prices. We document similar results in an international sample of six major currency areas.

Increased loan demand from private customers

In Danmarks Nationalbank's lending survey 1st quarter of 2021 several banks report that loan demand both from their existing and new private customers increased from the 4th quarter of 2020 to the 1st quarter of 2021. The banks mention, among other things, increased activity on the housing market as a possible explanation for the increased loan demand.

Refinancing has boosted the interest rate pass-through to fixed-rate mortgages

Half of homeowners in Denmark finance their mortgages via fixed rate loans. Danish fixed rate mortgages are special, as they can be re-financed without the outstanding debt being significantly increased. This makes refinancing attractive when interest rates decrease. Declin-ing interest rates since the financial crisis have implied that many homeowners have refinanced their fixed rate mortgages to lower rates. This has increased the interest rate pass-through and thus supported the transmission of monetary policy rates to homeowners' budgets.

Working Paper: The role of refinancing in the interest rate pass-through to fixed-rate mortgage contracts

In this paper, I study how mortgage refinancing influences the interest rate pass-through to household budgets via fixed-rate mortgage contracts in Denmark. The paper shows that the long-run interest rate pass-through is significantly below unity in the years after the financial crisis and subsequently converges towards a level close to unity. The result can be used to understand the importance of the asymmetric effects of monetary policy transmission.

Assistant Governor Karsten Biltoft new CEO of Finansiel Stabilitet

​Assistant Governor Karsten Biltoft will be leaving Danmarks Nationalbank to take up the position of CEO of the resolution authority Finansiel Stabilitet on 1 December 2021.

How do non-pharmaceutical interventions affect the spread of COVID-19? A literature review

This memo reviews the academic literature on the effectiveness of non-pharmaceutical interventions in mitigating the spread of COVID-19. Only empirical studies are included. Interventions generally reduce COVID-19 spread but the literature is less conclusive for some interventions than others. Intervention timing and local characteristics are determinants of effectiveness.

Foreign Exchange and Liquidity and Monthly Balance Sheet, March 2021

In March 2021, the foreign-exchange reserve increased by kr. 17.1 billion to kr. 446.5 billion. The increase reflects Danmarks Nationalbank's net purchase of foreign exchange for kr. 17.1 billion. In March, Danmarks Nationalbank's net purchase of foreign exchange due to intervention in the foreign-exchange market amounted to kr. 17.0 billion.

Working Paper: Overpersistence Bias in Individual Income Expectations and its Aggregate Implications

Using micro-level data, we document a systematic income-related component in household income forecasting errors. We show that this bias can be formalized by a modest deviation from rational expectations, where agents overestimate the persistence of their income process. The bias alters the distribution of marginal propensities to consume which makes government stimulus policies less effective.

IIP remained robust despite decline in 2020

Denmark's international investment position (IIP) fell by kr. 367 billion last year and amounted to kr. 1,428 billion at the end of 2020. The decline is mainly due to a strong Danish stock market and a weaker dollar exchange rate. This is only the second fall in Danish annual IIP since Denmark went from negative to positive IIP in 2009.

Rising share prices lift Danes' wealth

Danish households' net financial wealth – the difference between financial assets and debt – increased by kr. 811 billion in 2020. This corresponds to an increase of kr. 294,000 for the average Danish household, which thus had financial wealth of approx. kr. 2.3 million at the end of last year.

Huge increase in Danes' foreign share purchases

Danish household purchases of foreign shares via banks and trading platforms have hit record highs since the coronavirus outbreak in 2020. Net purchases since the end of March last year total kr. 16 billion, resulting in total holdings of foreign shares of kr. 108 billion. Households also own foreign shares through investment funds and through their pension savings. In comparison, they sold Danish shares for kr. 0.5 billion in the same period.

Mortgage bonds have become longer

A rise in the long-term interest rates in February 2021 contributed to an increase in the duration of fixed-rated callable mortgage bonds from 4.8 to 6.3 years. At the end of February, the total outstanding volume of callable mortgage bonds was kr. 1,356 billion.

Large geographical difference in interest-only

For the first time in several years, there was a significant increase in Danes' mortgage debt without instalments in 2020. However, the propagation of interest-only is very different from municipality to municipality: For example, at the end of the year, the share of the total interest-only mortgage debt was just 18 per cent in Lolland Municipality against as much as 69 per cent in Gentofte Municipality. Mortgage debt without instalments is most widespread in and around large towns and in North Zealand, while the southern and western municipalities, in particular, have a lesser degree of mortgage debt without instalments.

One in four mortgage loans comes with negative rates

At the end of 2020, 26 per cent of Danes' mortgage loans secured on real estate had negative interest rates, equivalent to about 400,000 loans. Even if interest rates are negative, borrowers continue to pay administration fees to the mortgage credit institution. The average fee is 0.81 per cent p.a., corresponding to kr. 8,076 per borrowed million. So, if the fee is included, only few loans have negative interest rates.

A Factor Model Approach to Nowcasting Danish GDP

This memo documents a nowcasting model for Danish GDP used during the economic crisis related to the outbreak of COVID-19. During this crisis, the model provided timely and more accurate nowcasts than a simple model. To improve the timeliness of nowcasts we make use of new high-frequency indicators.

Working Paper: Detecting turning points in the Danish economy in real time

This working paper documents an econometric model for detecting turning points in the Danish economy. The model can be updated immediately as data comes through. It is shown that the model gives correct signals about the activity in the Danish economy in real time.

Outlook for the Danish economy – Prospects of a rapid recovery once restrictions are eased

The second wave of the pandemic and new lockdowns have temporarily interrupted economic recovery and resulted in new large losses of activity in large parts of the Danish and international economies during the winter. However, other parts of the economy are seeing high activity, including construction and the housing market. Vaccination of the population and reopening of society have begun. Large savings, disbursement of holiday pay funds and accumulated demand provide a sound basis for a heavy increase in activity when the economy is less constrained by restrictions. Overall, activity is expected to have recovered towards the end of 2021.

Monetary and financial trends - Accommodative financial conditions support the real economy

Despite long term yields in particular having increased in 2021, the interest rate level is still low. Simultaneously, equity and house prices have increased during the past six month, and the financial conditions are considered accommodative. The Danish krone is moderately strengthened against the euro since March 2020.

Rapid economic recovery is possible, when restrictions are eased

​A gradual reopening of society has commenced, but large parts of the Danish economy remain hampered by restrictions. There is a sound basis for a rapid economic recovery. The vaccination of the population, large savings, the disbursement of holiday allowance and accumulated demand provide fertile ground for a sharp increase in activity when the economy is less restricted by restrictions. Danmarks Nationalbank is projecting gross domestic product (GDP) to increase 1.4 per cent this year, 4.5 per cent in 2022 and 2.2 per cent in 2023.

Annual Report 2020

Danmarks Nationalbank posted a profit of kr. 1,616 million in 2020 against a profit of kr. 6,096 million in 2019. Gold stock, equity exposure and bond holdings all contributed significantly to the profit for the year.

Technical adjustments of the monetary policy instruments

​Danmarks Nationalbank carries out a technical adjustment of the monetary policy instruments. The purpose is to reduce fluctuations in the Danish money market rates resulting from changes in the size and composition of the banks' deposits and lending at Danmarks Nationalbank.

Technical adjustment of the monetary policy instruments

Danmarks Nationalbank introduces one single rate for deposits and one single rate for monetary policy loans. Simultaneously, the difference between the monetary policy rates is narrowed. The adjustments ensure more stable money market rates and thus a more predictable effect on the Danish krone. The adjustments are not intended nor expected to affect the level of money market rates or the Danish krone.

Working Paper: Regulating Liquidity Risk in Mutual Funds

I analyze the effects of liquidity risk regulation in a model of investors, mutual funds, and the underlying asset market. Investor redemptions lead mutual funds to sell assets, which may result in fire sales if market liquidity, driven by the anticipation of fire sales, is scarce. Mutual funds optimally choose to pass fire sales of their assets on to investors. Pecuniary externalities make liquidity supply to the underlying asset market inefficiently low. Regulatory policies, liquidity requirements for mutual funds, and redemption gates have adverse effects on liquidity provision to the asset market and may increase the incidence of fire sales.

Crisis management of credit institutions – what is new?

Today, we have crisis management rules in Denmark and the rest of the EU which ensure crisis management of failing credit institutions without the use of government funds. A recent revision of the rules makes it more likely that senior unsecured creditors will have to contribute to the crisis management of a failing credit institution. It is important that senior unsecured creditors are aware of the risk and take it into account in their risk management.

Spring pension-thriller turned into success

The total return on Danish pension savings ended at kr. 251 billion for 2020 – equivalent to an annual return of approximatively 6.1 per cent. The positive return was not given in the spring, when the corona crisis led to large declines in the financial markets and thus also in the return on Danish pension savings. In March, when it looked the worst, the Danes expected a total loss on their pension savings of kr. 255 billion.

Foreign Exchange and Liquidity and Monthly Balance Sheet, February 2021

​In February 2021, the foreign-exchange reserve increased by kr. 1.8 billion to kr. 429.4 billion.

Continued high foreign interest in mortgage bonds

Since the beginning of 2020, foreign investors' ownership share of Danish 30-year fixed rate callable mortgage bonds has been constant at around 40 per cent. At the end of January 2021, this corresponded to foreign investors owning bonds totalling kr. 408 billion.

30-year fixed-rate mortgage bonds exceed kr. 1,000 billion

In January 2021, the total outstanding volume of 30-year fixed-rate callable mortgage bonds amounted to kr. 1,037 billion, which is an increase of kr. 138 billion compared to last year. There has been a clear shift towards mortgage bonds with lower coupon rates in connection with falling interest rates and refinancing of mortgages. As a result, the share of bonds with a coupon rate of 1 per cent or lower has increased from 49 per cent to 71 per cent since January 2020.

Mortgage debt without instalments grows again

The Danes' appetite for mortgage loans without instalments was renewed in 2020, where the total mortgage debt without instalments grew by kr. 30.9 billion. Mortgage loans without instalments were introduced in 2003 but debt without instalments has in general been declining since 2012. The change in 2020 is thus the first significant increase in many years and the largest increase since 2011.

The Danes' mortgage loan expenses fall

The Danes' annual mortgage loan expenses still fall and have now reached on average kr. 15,532 per borrowed million. Kr. 7,450 of this amount is interest payments to the bond investors, and kr. 8,082 is administration fees to the mortgage credit institution.

Working Paper: The Value of Bond Underwriter Relationships

This paper analyzes the role of underwriters for issuers of corporate bonds. The results suggest that – in terms of issuance costs – bond issuers benefit from using underwriters they have used before, but, at the same time, this exposes the issuer to a credit risk spillover from the underwriter.

Few foreign direct investments in 2020

The activity in foreign direct investments (FDI) was low in 2020. Danish companies' outward FDI increased by kr. 5 billion, while Danish inward FDI decreased by kr. 10 billion.

High savings during corona were driven by restrictions rather than precautionary consumers

Households' savings increased significantly during the first wave of the corona pandemic in Denmark and several other countries. This Economic Memo finds that the higher savings in Denmark were driven by restrictions rather than precautionary consumers. Precautionary savings have so far been relatively limited and smaller than during the financial crisis. (Memo available in Danish only).

Danish Government Borrowing and Debt 2020

The government budget developed better than expected in 2020. The Danish central government debt amounted to kr. 536 billion, equal to 23 per cent of GDP at the end of 2020. The course of the covid-19 crisis has clearly highlighted the importance of the central government having access to a broad and diversified investor base through multiple financing channels. Despite periods with market turmoil, domestic government bonds were sold at record low yields. On average, nominal government bonds were sold at a yield to maturity of -0.33 per cent p.a. and an average maturity of 11.6 years. Interest costs on the central government debt totalled 0.7 per cent of GDP.

Are climate change risks priced in the US stock market?

We construct measures of physical and transition risks by conducting textual analysis of climate news. Using U.S. stock prices, we find that only the short-term risks elicited by the political debate are priced. Longer running risks elicited by news on international summits, global warming and natural disasters are not priced.

Working Paper: Are Climate Change Risks Priced in the US Stock Market?

We construct proxies of physical and transition risks by conducting textual analysis of climate news. Using U.S. stock prices, we find that only the short-term risks elicited by the political debate are priced. Longer running risks elicited by news on international summits, global warming and natural disasters are not priced.

Denmark supports the IMF's crisis response

The International Monetary Fund (IMF) has approved a historically large number of loans during the coronavirus crisis. The demand for IMF loans is expected to increase further as a result of the coronavirus crisis and vulnerabilities in a number of countries. Danmarks Nationalbank contributes to the IMF's crisis response and has made new lending resources available to the IMF on behalf of Denmark.

The IMF's provision of insurance against balance of payments needs and how to improve it

The memo summarizes the design and use of the IMF's precautionary facilities since their introduction and discusses lessons and potential reform options. In particular, the framework for these facilities should be adjusted to address prolonged use at high access levels.

Foreign Exchange and Liquidity and Monthly Balance Sheet, January 2021

​In January 2021, the foreign-exchange reserve decreased by kr. 11.4 billion to kr. 427.6 billion.

Working Paper: How news affects sectoral stock prices through earnings expectations and risk premia

We show that the transmission of news to prices goes through a combination of changing earnings expectations and risk premia. Price changes for especially the financial sector are mainly driven by changes in equity risk premia, while changes in earnings expectations play a comparatively larger role for other sectors.

Increased appetite for investment funds in 2020

Danish private investors purchased UCITS fund shares worth kr. 21 billion in 2020, a significant increase on the previous two years and the largest purchase since 2015. At the end of December 2020, the market value of private investors' UCITS fund shares amounted to kr. 378 billion. By way of comparison, their investment in listed stocks and bonds, primarily stocks, totalled kr. 326 billion.

Card turnover 0.9 per cent lower than last year

In 2020, total Danish payment card turnover ended 0.9 per cent below the 2019 level. So, for the first time since the introduction of payment cards in 1983, Danes used their payment cards less than the previous year. Under normal circumstances, card turnover has historically risen by about 5 per cent annually, driven by general economic growth and a growing trend for card payments instead of cash payments.

Consumption less affected by the latest lockdown

On 17 December 2020, Denmark entered its second lockdown, and restrictions were tightened further on 25 December. As a result, consumption, measured by card turnover, decreased by 10.0 per cent during the first five weeks of the lockdown relative to the year-earlier period. By way of comparison, card turnover dropped by 18.7 per cent during the first five weeks of the spring lockdown, indicating a softer economic slowdown.

Massive purchases of foreign securities in 2020

Danish investors purchased foreign portfolio assets for kr. 248 billion in 2020. This is the largest-ever foreign portfolio investments by Danish investors. The investments were mainly in foreign shares etc.

Unwavering foreign interest in Danish shares

Foreign investors' ownership of listed Danish shares increased from 53 per cent to 55 per cent in 2020, where the value of the Danish stock market increased to kr. 3,733 billion.

Switch operations via the Danish central-govt's auction system in 1st Half of 2021

For the remainder of 1st Half of 2021, switch operations will be offered via the auction system MTS PAF which is currently used for the regular auctions of Danish government securities. First time will be on 11 February 2021.

Negative interest on Danes' deposits of kr. 136 billion

In October 2020, 13.4 per cent of Danes' deposits earned negative interest, equivalent to deposits of about kr. 136 billion, up about kr. 100 billion on the latest survey in February 2020. These figures are from Danmarks Nationalbank's latest survey of the prevalence of negative deposit rates, covering 18 of Denmark's medium-sized and large banks.

Deposit rate averaging -0.07 per cent

In October 2020, the average rate on Danes' ordinary deposits, which can be immediately withdrawn or used for payments, was -0.07 per cent. This means that Danes pay an average of kr. 7 annually to banks for each kr. 10,000 of deposits.

New Head of Banking and Markets in Danmarks Nationalbank

​Danmarks Nationalbank has appointed Lars Mayland Nielsen as Head of Banking and Markets with effect from 1 February 2021.

Danmarks Nationalbank in pilot project against money laundering and VAT fraud

​In a pilot project, Danmarks Nationalbank has examined the potential of more effective monitoring of cash flows across banks in the fight against money laundering and VAT fraud. The project has shown that a correlation of data could have potential gains extending beyond what the individual bank or authority will be able to achieve on its own.

Data-driven effort strengthens the fight against money laundering

Danmarks Nationalbank, in collaboration with a large Danish bank and other institutional actors, has shown that an innovative risk-based approach based on multiple data sources, among which granular transaction data, can support the fight against economic crime. Realising the full potential of such an approach requires combining data across banks and public institutions.

Working Paper: QE in a quasi-preferred habitat: The case of the Danish pension sector and the ECB asset purchase programme

The reaction of Danish pension companies to ECB’s asset purchase programme is analysed using a novel, in-house data set. The pension companies sold euro bonds and bought Danish bonds in the first months following the introduction of the ECB purchase programme in 2015. After a short while, the pension companies returned as buyers of euro bonds.

Pension fund response to ECB purchases

In early 2015, when the European Central Bank (ECB) began purchasing government bonds issued by euro area countries, Danish pension funds sold off the bonds purchased by the ECB to buy Danish bonds. Changes to the ECB's monetary policy stance are important to Danmarks Nationalbank and Danish monetary policy.

Nordic-Baltic countries engage the IMF to conduct an analysis of cross-border money laundering and terrorist financing risks in the region

​The eight countries of the Nordic-Baltic Constituency of the International Monetary Fund (IMF) have taken the initiative to engage the IMF to conduct a regional analysis of money laundering (ML) and terrorist financing (TF) threats and vulnerabilities.

Further weakening in loan demand from NFC

In Danmarks Nationalbank's lending survey for the 4th quarter of 2020, 11 out of 19 banks report that loan demand from existing corporate customers dropped from the 3rd to the 4th quarter of 2020. Nine of 11 banks also reported that demand decreased from the 2nd to the 3rd quarter and have now seen further declines from the 3rd to the 4th quarter. Weighted by the banks' respective market shares, the decline in loan demand from the 3rd to the 4th quarter corresponds to a net figure of -27.6.

Opening of 0.00 per cent bullet loan 2031

Foreign record purchase of Danish bonds

From January to November 2020, foreign investors have increased their portfolio investments in Danish securities by kr. 286 billion. Foreign investors have in particular bought Danish bonds. The purchase of Danish bonds for kr. 252 billion in 2020 is the largest in the period where portfolio investments statistics have been compiled.

Large amount of Danish government securities

In 2020, the total nominal outstanding amount of Danish government securities increased by kr. 227 billion, to a total of kr. 807 billion in November 2020. Of this, kr. 710 billion is issued in the Danish kroner, and kr. 97 billion is issued in foreign currency. The increased amount of outstanding government securities in 2020 partly reflects the government's increased borrowing needs, as a result of the corona crisis, and the build-up of a liquidity reserve.

New Head of Economics and Monetary Policy at Danmarks Nationalbank

​Danmarks Nationalbank has appointed Thomas Harr Assistant Governor and Head of Economics and Monetary Policy. He will be taking up his new position on 1 May 2021.

Bank loans to NFCs have decreased during 2020

In a year affected by covid-19 and restrictions banks' loans to Danish non-financial corporations (NFCs) decreased by kr. 18.5 billion. The bank loans to NFCs were kr. 449.5 billion by the end of November 2020, which is 4.4 per cent less compared to the same pe-riod last year.

Majority of mortgage loans are with installments

The amount of Danes' mortgage loans with install-ments was kr. 955 billion by the end of November 2020. Thus, it has increased by kr. 38 billion in 2020. 55.3 per cent of the mortgage debt was with installments compared to 55.0 per cent at the beginning of 2020.

Foreign Exchange and Liquidity and Monthly Balance Sheet, December 2020

​In December 2020, the foreign-exchange reserve decreased by kr. 16.8 billion to kr. 439.6 billion.

Unchanged IIP for the last two quarters

Denmark's international investment position (IIP) has remained largely unchanged for the last two quarters, totalling kr. 1,481 billion at the end of the 3rd quarter. Overall, the current account surplus has increased the IIP while price and exchange rate changes have reduced the IIP similarly.

Danes' wealth is greater than before the corona

The Danish households' financial net wealth increased by kr. 362 billion in the third quarter and thereby reached kr. 5657 billion in total. The rapid recovery of wealth thus continued and now more than offset the historically large decline at the beginning of the year with a net increase of kr. 168 billion.

Central government borrowing strategy 2021

The target for sales of domestic government bonds is kr. 125 billion. Issuance will be focused in the 2-year and 10-year nominal bonds. On 20 January, a new 10-year bond with maturity in 2031 will be opened. A new 2-year bond with maturity in 2024 will also be opened in the 1st half of the year. The target for sales of domestic T-bills is kr. 60 billion, and the outstanding amount of commercial papers will be reduced in 2021 as the temporary Covid-19 measures are phased out.

Working Paper: Labor cost pass-through to producer prices in Denmark

We estimate the pass-through of a wage shock to producer prices of firms in Denmark. Our results suggest that the pass-through elasticity of wage increases to prices amounts to about one third. Our results are in line with studies of earlier time periods and confirm an important causal relationship between wages and prices.

Faroese economy - The Faroese economic boom is losing momentum

Nine months after the outbreak for the corona pandemic, employment on the Faroe Islands is high, unemployment very low, and parts of the economy experience labour shortages. However, exports have lost speed this year on the back of extraordinary growth, and the economic boom now seems to have peaked. In the future, more elderly and less working-aged challenges the sustainability of public finances. It is important to prioritize reforms early on that bring a balance to income and expenses in the future.

Outlook for the Danish economy - Spread of coronavirus delays recovery

Parts of the Danish economy are dominated by high activity, while other parts are limited by restrictions that delay recovery. Economic growth has slowed down, but is expected to pick up in 2021 as the population is vaccinated and restrictions are eased. Fiscal policy is currently stimulating demand in industries not affected by restrictions and in which activity is already high. Fiscal policy should not be eased further, but temporary relief measures may be extended to industries affected by restrictions.

Financial stability - Banks should keep their powder dry

So far, the credit institutions have come through the crisis relatively unscathed. With a number of relief packages, the central government has provided a cushion under large parts of the Danish corporate sector. However, credit institutions must prepare for the end of the schemes. In line with the government relief packages being phased out, the credit institutions will have to expect higher losses and a deterioration in the credit quality of their lending. The situation remains highly uncertain, and the credit institutions should be cautious when planning dividend payments.

A few banks fall short of capital requirements in stress test

A stress test of the banking sector shows that a few banks fall short of the capital buffer requirements in a severe recession scenario. However, due to the suspension of dividend payments and share buybacks, most banks are more resilient to stress than previously. For the first time, Danmarks Nationalbank uses the credit register data to allocate impairment charges more accurately among banks' corporate customers.

Banks should keep their powder dry

Increased infection rates delay recovery

​Danmarks Nationalbank has updated its forecasts for the Danish economy and now expects GDP to fall by a total of 3.9 per cent in 2020, followed by a subsequent increase of 2.9 per cent and 3.3 per cent in 2021 and 2022, respectively. (Correction to numbers released earlier today).

Danish kroner on new settlement platform

Considerable variation in Danes' pension savings

At the beginning of 2020, each Dane had average pension savings of kr. 589 thousand, but considerable variation in savings is seen across the Danish population. About two-thirds of Danes have below-average pension savings, while the remaining third have savings above average.

How does COVID-19 affect r*?

This memo discusses effects of COVID-19 on interest rates through the lens of global movements in the natural real interest rate. While government spending and public debt issuance are likely to cause a rise in r*, r* may decline due to precautionary behaviour. The net effect is uncertain.

Stable pension contributions despite corona

During the first three quarters of 2020, the pension sector received pension contributions totalling kr. 99 billion, equivalent to an increase of kr. 1 billion, or 1 per cent, on the prior-year period. Pension contributions generally rose by an average of 2.5 per cent per year during the period from 2015 to 2019.

Foreign Exchange and Liquidity and Monthly Balance Sheet, November 2020

​In November 2020, the foreign-exchange reserve decreased by kr. 5.0 billion to kr. 456.4 billion.

Danmarks Nationalbank becomes owner and administrator of new Danish reference rate

The pension sector sells foreign government bonds

The Danish insurance and pension sector has sold foreign government bonds worth kr. 27 billion since March 2020, primarily euro area government bonds, with the largest divestment in Spanish, Irish and German government bonds.

Fewer mortgage bonds with coupons exceeding 1 per cent

Since October 2019, the volume of 30-year fixed rate callable mortgage bonds with a coupon rate exceeding 1 per cent has been reduced by kr. 261 billion, entailing that their share has declined from close to two thirds to only about one third of the outstanding volume of 30-year fixed rate mortgage bonds, totalling kr. 998 billion in October 2020.

Long remaining maturity on Danes' mortgage debt

Long remaining maturity is a particular characteristic on Danes' mortgage debt. At the end of the 3rd quarter of 2020, the remaining maturity of 59.9 per cent of all Danes' mortgage debt was between 25 and 30 years. Approximately half of the outstanding debt is in the form of 30-year loans disbursed within the past year, either as new loans or as refinancing of existing loans to new loans with 30-year maturities.

Thawed holiday pay gets deposits over the trillion

At the end of October, total Danish private customers deposits reached kr. 1,020 billion, exceeding kr. 1 trillion for the first time ever. In October alone, Danes increased their deposits by no less than kr. 28.6 billion, boosted by the extraordinary disbursement of frozen holiday pay under which a total net amount of kr. 28.2 billion was disbursed, according to figures from ATP.

Can capital buffers actually help banks in times of crisis?

Banks' capital buffers should function as a cushion and be able to absorb losses during an economic downturn, so that banks can continue lending to the economy. The usability of buffers might however be limited, if other requirements, such as the leverage ratio requirement and MREL, exceed the capital requirements. This is the case for several of the largest Danish banks. Future amendments to regulation should therefore take into account the interaction between requirements, so that all requirements can serve their purpose.

Increased uncertainty reduces investment appetite during covid-19

Uncertainty about the future has caused Danish corporations to hold back on investment during the covid-19 outbreak. These are among the conclusions of a new Working Paper in which economists Mikkel Bess, Erik Grenestam, Alessandro Martinello and Jesper Pedersen, Danmarks Nationalbank, have analysed whether uncertainty has an impact on economic activity in Denmark.

Working Paper: Uncertainty and the real economy: Evidence from Denmark

The language in news articles can be used to measure the perceived level of economic uncertainty. In a model of the Danish economy, increased uncertainty contributed significantly to the drop in investments during the Sovereign Debt Crisis. So far, uncertainty has had a smaller impact on investments during the COVID-19 pandemic.

Working Paper: Do firms behave differently when nominal interest rates are below zero?

Denmark was the first country in the world to move its key monetary policy rate below zero. Using rich microdata and an event study framework, we find that firms exposed to negative deposit rates to a higher degree than other firms increase their fixed investments and employment.

Corporations deleverage and invest when charged negative interest rates on bank deposits

Many corporations are now being charged negative interest rates on their bank deposits. These corporations change banks and deleverage to a greater extent than other corporations. They also increase their investment in new capital equipment and create more new jobs.

New editions of 500-krone banknote issued

​Danmarks Nationalbank has issued new, updated 500-krone banknotes. The new banknotes are very similar to the existing banknotes, but there are slight differences because several new security features have been added.

New versions of Danish banknotes

On 17 November 2020, new 500-krone banknotes will be introduced in Denmark.

Decline in foreign direct investments in USA

Danish investors decreased their outward foreign investments in USA by kr. 21 billion in the first three quarters of 2020. This is mainly driven by a decline in intercompany debt in manufacturing and it is due to American subsidiaries placing excess liquidity in their Danish parent companies.

Greenlandic economy - Economic growth halted and growing government deficit

The coronavirus pandemic has ended years of solid growth. Travel restrictions have left their mark on tourism and other sectors heavily reliant on foreign visitors. The important fisheries industry is less affected by the global economic downturn, and fisheries risks are particularly associated with lower fish and shellfish prices in the world market. Additional expenditure related to emergency flights, relief packages, etc. is putting a strain on central government finances. Therefore, the outlook is for an increase in government debt, albeit from a low level. For a number of years, growth in public consumption has exceeded budgeted levels. To ensure a sustainable balance between government revenue and expenditure, public sector efficiency measures will be needed going forward.

Scandinavian central banks in new cooperation

​The central banks of Denmark, Norway and Sweden have entered into a new agreement regarding principles for central bank currency swap facilities to strengthen contingency for crisis situations and promote financial stability in the region.

Working Paper: Worker heterogeneity, selection, and employment dynamics in the face of aggregate demand and pandemic shocks

We model a COVID recession resulting from a negative demand shock and the need for social distancing, considering the US economy as an example. Low-productivity workers suffer a protracted surge in unemployment and inefficient separations from firms. Unemployment is amplified when nominal interest rates are close to the effective lower bound.

Danish Mortgage bond liquidity briefly impacted by covid-19

In mid-March, there was great uncertainty on the financial markets, resulting in increasing credit and liquidity costs. The Danish mortgage bond market was also affected, and mortgage rates rose sharply in the course of a few days. This analysis describes the development in the market liquidity on the Danish mortgage bond market in mid-March 2020 with specific focus on the primary issuance market. The analysis shows that mortgage credit institutions were still able to issue and sell bonds on the market, but that market liquidity was significantly reduced during the days with greatest uncertainty

Foreign Exchange and Liquidity and Monthly Balance Sheet, October 2020

​In October 2020, the foreign-exchange reserve increased by kr. 5.7 billion to kr. 461.4 billion.

A gradual green transition supports financial stability

Danmarks Nationalbank has performed a climate stress test to highlight transition risks in the banking sector. The analysis shows that the banks are generally well equipped to handle transition risks. However, a drastic transition in which the banks need to make large impairment charges over a short time frame may result in a capital shortfall. The banks should take climate risks into account in their risk management and capital planning.

Foreign tourists' consumption more than halved

At the end of the 3rd quarter of 2020 card turnover from foreign cards, foreigners' consumption, in physical points of sale is about 57 per cent lower compared to the same point in time last year. This corresponds to a decline of kr. 11.9 billion, of which kr. 4.8 billion is attributed to the 3rd quarter.

Passive investments funds are growing

Since January 2018, total assets in passively managed equity funds have almost doubled from kr. 43 billion to kr. 85 billion. Most of this change is driven by new investments amounting to kr. 36 billion, while the value of the investment increased by kr. 5 billion.

Danish investors buy North American shares

Since January 2020, Danish investors have bought foreign shares for kr. 88 billion. The investments have primarily been in shares issued in North America. Danish investors own foreign shares for kr. 1,386 billion of which kr. 766 billion are issued in North America and kr. 403 billion are issued in Europe.

Half a year with Danish shares in comeback

With a return of 2.4 pct. in September, the Danish listed shares have now given a positive return for the sixth month in a row. Thus, at the end of September the total value of the Danish stock market is kr. 3,340 billion.

Lower borrowing needs in Danish corporations compared to European during COVID-19

Corporate borrowing has been virtually unchanged in Denmark during the first wave of the pandemic, whereas corporations in a number of European countries have increased their borrowing heavily. The national differences especially reflect varying corporate liquidity needs. Corporate borrowing has been higher in countries that have seen a heavy economic downturn. The capital reserves accumulated by corporations prior to the first coronavirus outbreak have also had an impact on their borrowing needs. Another explanation of the varying borrowing needs and loan supply may be the extensive policy measures implemented by several countries to support corporate liquidity.

Top 1 per cent has more than 20 per cent of the deposits

One percent of Danish private customers accounted for 20.7 per cent of the total deposits in the banks of kr. 801.8 billion at the beginning of 2020. These customers all had more than kr. 1.8 million in bank deposits and on average kr. 2.8 million. In comparison, the half of the Danes with the lowest deposits had 5.2 per cent of the total deposits.

Danes repay more on their mortgage loans

In the last four quarters, households have increased the repayments on their mortgage loans by kr. 998 on average per borrowed million. The total annual repayment per borrowed million is now on average kr. 24,212, corresponding to an installment percentage of 2.4 per cent. The Danes have repaid kr. 6.0 billion on fixed-rate loans in 3rd quarter 2020, while the repayments on variable-rate loans were kr. 4.4 billion.

Working Paper: The Impact of Pessimistic Expectations on the Effects of COVID-19-Induced Uncertainty in the Euro Area

A statistical model for euro area macroeconomic aggregates shows that an increase in uncertainty and disagreement about the economic outlook impacts the economy three times as much if the outlook is pessimistic. This result implies that the uncertainty generated by COVID-19 can lead to a 15.1% fall in industrial production.

Danmarks Nationalbank's comments on the Economic Council's Autumn 2020 report

Issuance of 2-year dollar bond

Real interest rates are affected by inflation expectations

The real interest rate is important for the economic development and is affected by the nominal interest rate and inflation expectations. This analysis illuminates what the real interest rate is, why it is important for real economy development, and the challenges that may be involved in measuring its size and impact on the economy.

Foreign direct investment often passes through holding companies

In 2019, the value of inward FDI in Denmark increased by kr. 53 billion to kr. 811 billion. Inward FDI in Denmark often passes through holding companies. Looking at investments passing through holding companies, most inward FDI in Denmark is made in business service, trade and transport and manufacturing industry. Danish outward FDI increased by kr. 90 billion to kr. 1,453 billion. The main driver is a rise in equity investments by Danish firms through acquisitions and capital increases.

FDI often controlled from the USA

In 2019, inward FDI in Denmark was worth kr. 881 billion. About kr. 219 billion was ultimately controlled from the USA, making the USA the largest investor in Denmark. This appears from Danmarks Nationalbank's annual FDI statistics on ultimate investor country, which are published today.

Decreasing demand and increasing impairments

In Danmarks Nationalbank's lending survey for the 3rd quarter of 2020, 13 out of 19 banks report that loan demand from existing corporate customers has decreased from the 2nd to the 3rd quarter. 4 of the 13 banks report that demand has decreased a lot. The remaining 9 banks report that demand has decreased a bit. The majority of the remaining banks answer that loan demand is unchanged. In the same period, 8 banks report that the proportion of impairments and losses has increased compared to the 2nd quarter. 6 of the 8 banks expect a further increase in impairments and losses in the 4th quarter.

Foreign Exchange and Liquidity and Monthly Balance Sheet, September 2020

​In September 2020, the foreign-exchange reserve increased by kr. 0.1 billion to kr. 455.7 billion.

Denmark's IIP increased by kr. 16 billion

Denmark's international investment position, IIP, increased in the 2nd quarter of 2020 by kr. 16 billion in the wake of the decline of kr. 289 billion in the 1st quarter of 2020. Hence, the increase in the 2nd quarter could not offset the decrease in the 1st quarter, which was primarily due to price losses on Dane's holdings of foreign stocks.

The Danes' wealth regained much of the loss

The net financial wealth of Danish households increased in the 2nd quarter by kr. 380 billion. Thus, 72 per cent of the significant losses of kr. 525 billion in the 1st quarter are recovered overall. Households' net financial wealth is kr. 5,272 billion at the end of the 2nd quarter.

Large purchases of foreign bonds and stocks from April to August

From April to August, Danish investors have purchased foreign bonds for kr. 86 billion and foreign stocks incl. investment funds for kr. 108 billion. The purchase occurred after the significant sale of foreign securities in March where closures and uncertainties caused a large decline in prices on global stock markets.

Large sale of Danish government securities during the corona crisis

On the behalf of the Danish government, the Danish central bank has net sold government securities for kr. 260 billion since March. Foreign investors have increased their holdings by a total of kr. 154 billion while domestic investors have increased their holdings by the remaining kr. 106 billion.

The labour market is recovering after historically severe setback

The Danish labour market experienced a historically severe setback after the partial shutdown of the economy but is now recovering. This Economic Memo gives a detailed account of the developments on the Danish labour market over the past six months and serves as the foundation for Danmarks Nationalbank’s Outlook for the Danish economy, September 2020. (Memo available in Danish only).

Fixed-rate mortgage loans now dominate

More than half of the Danish homeowners' total mortgage loans of kr. 1,712 billion is now again with a fixed interest rate, more precisely kr. 856.6 billion. The last time fixed-rate loans accounted for more than half of the loans, was in 2009. The lowest level was in 2012 with just 31.5 per cent.

Homeowners now pay 1.61 percent on average

The interest rate including administration fees on the Danes' mortgage loans in August is on average 1.61 per cent p.a. This corresponds to an annual expense before taxes of kr. 16,100 per borrowed million. The kr. 8,100 of this is fees to the mortgage credit institution, while the remaining kr. 8,000 is interest payments to the bond investors behind the loan.

Outlook for the Danish economy - Prospects of moderate recession the coming year

Since the reopening, economic activity has picked up in large parts of the Danish economy. However, the lockdown resulted in large economic losses, and Danish GDP is expected to decrease by 3.6 per cent overall this year. Internationally, many countries are in deep recession. This puts a damper on Danish export opportunities in the future. At the same time, some domestic industries will be subject to restrictions for a period of time. Recovery will be more gradual for these industries. The different relief packages are useful in the current situation. However, they should be phased out in line with restrictions being lifted, as they hamper business sector dynamics and labour market mobility.

Prospects of moderate recession

​This is Danmarks Nationalbank's conclusion in its new projection for the Danish economy, in which gross domestic product (GDP) is forecast to decrease by 3.6 per cent in 2020 as a whole as a result of the heavy economic downturn in the spring. The recovery of economic activity is expected to continue, but at a slower pace. GDP is forecast to increase by 3.6 per cent in 2021 and by 2.3 per cent in 2022. However, there is great uncertainty about the economic development, which will be strongly influenced by how the spread of the coronavirus develops in the coming period.

Monetary and financial trends - Stable financial markets support economy in recession

Financial markets have been relatively calm since end-March. Central banks' actions during the spring are a main reason that financial markets have calmed down. Financing costs for households and non-financial corporations have declined in Denmark, and they are now on the same level as in the start of 2020. The krone exchange rate towards the euro is moderately strengthened since March. At end-August Danmarks Nationalbank had not intervened in the foreign exchange market during the past five months. The monetary interest rates are unchanged as well. Credit growth is low in Denmark compared to the euro area.

Signe Krogstrup is appointed as a new member of Danmarks Nationalbank's Board of Governors

Working Paper: Spending when illiquid savings become liquid: Evidence from Danish wage earners

This paper offers new empirical evidence on the marginal propensity to consume out of an unanticipated liquidity shock. The results show a 43 dollar spending increase for each 100 dollar increase in liquid resources. The estimated spending patterns are consistent with the notion of wealthy hand-to-mouth behaviour.

Increased turnover during corona crisis

The daily turnover in the Danish money market was kr. 93 billion in the 2nd quarter of 2020, which was an increase of 23 per cent compared to the same period last year. This appears from Danmarks Nationalbank's yearly money market survey, which includes turnover from interbank loan transactions and interest rate derivatives in the 2nd quarter. The increased turnover should be viewed in the light of elevated market volatility during the corona crisis and tighter liquidity conditions than previous years.

Payments before, during and after the corona lockdown

The corona pandemic and the lockdown of Danish society in spring 2020 gave rise to considerable uncertainty for many households. The lockdown and infection fears caused radical changes in consumption patterns and payment habits. This analysis looks at consumer payment habits before, during and after the corona lockdown. The analysis is based on a number of data sources used to draw information on the main trends in payment behaviour in Denmark during the lockdown and the first phases of the reopening.

Danes primarily opt for electronic payment solutions

In Denmark, consumers typically use their payment card or mobile telephone when paying for goods and services. Our position as one of the world's most digitalised societies is reflected in our payment behaviour. The analysis presents the most important insights into the development of Danes' electronic payment habits based on Danmarks Nationalbank's detailed household survey from 2019.

More pension savings in unlisted assets

During the second quarter, the insurance and pension sector invested kr. 8 billion in assets not listed on a stock exchange – unlisted assets. Since the beginning of 2018, the insurance and pension sector has invested kr. 206 billion in unlisted assets, which have increased from 23 pct. to 27 pct. as a share of total investments. Besides increased investing, value changes have also contributed to the increase in unlisted assets.

Foreign Exchange and Liquidity and Monthly Balance Sheet, August 2020

​In August 2020, the foreign-exchange reserve increased by kr. 26 million to kr. 455.7 billion.

Low level of payment card fraud during lockdown

In the second quarter of 2020, the level of Danish payment card fraud was kr. 36 million, which is record low. This corresponds to 23 øre being misused for every kr. 1,000 paid with Danish cards. The fraud has been decreasing since 2016 when it was first calculated by Danmarks Nationalbank. In the most recent quarter, the decrease was kr. 14.5 million.

Update to the central government borrowing strategy in the 2nd half of 2020

The government's net financing requirement in 2020 is increased by kr. 70 billion. The increase primarily reflects an additional deferral of tax and VAT payments. The target for issuance of government bonds in 2020 is maintained at kr. 125 billion. Given that the increased borrowing requirement primarily reflects temporary liquidity shifts, it willl be covered by short-term issuances. The outstanding amount of T-bills is expected to be kr. 80-100 billion at the end of 2020.

How can joint measures to manage cyber risks be prioritised?

Some systemic risks can best be addressed jointly. The Danish financial sector has developed a methodology for prioritising the joint work on cyber risks. The sector works together to identify and address systemic risks on a structured basis. The methodology increases cyber security both for the individual institution and for society as a whole.

Foreign investors continue to purchase 30-year fixed rate mortgage

In 2020, foreign investors have continuously purchased Danish 30-year fixed rate callable mortgage bonds. In July, foreign investors owned kr. 389 billion corresponding to ownership share of 41 per cent. Ownership shares are especially high in mortgage bonds with coupons of 1 and 1.5 per cent where ownership shares are 46 per cent.

Bonds with low coupon rates are on the rise

The Danish 30-year fixed callable mortgage bonds with fixed rate amounts to kr. 958 billion in July 2020 with 59 pct. having a low coupon rate at 1 pct. or lower. Since July last year, these mortgage bonds have risen by net kr. 443 billion.

Corporates' deposits are now larger than their loans

While banks previously lent more to corporate customers than they received in deposits, the opposite has been the case since May. In July, the banks' surplus on corporate deposits compared to lending increased by kr. 35.3 billion to kr. 56.6 billion.

Large fluctuations in rates on corporates foreign currency deposits

During the last few years, banks' interest rates on corporate deposits in foreign currency have exhibited large fluctuations compared with interest rates on deposits in Danish kroner. Interest rates on foreign currency deposits have been significantly reduced since September 2019 and have been relatively stable since May 2020.

Foreign direct investments decreased in 2nd quarter

Danish companies' direct investments abroad decreased by kr. 9 billion in the 2nd quarter of 2020. It was primarily driven by a decrease in intra-group loans. The outward direct investment consists of equity investments in and intra-group loans to foreign subsidiaries where the Danish investor has controlling influence.

IMF Assessment of the Danish financial sector

​ The International Monetary Fund (IMF) has carried out an indepth analysis of the Danish financial system. The analysis has been carried out in the context of the IMF's Financial Sector Assessment Program (FSAP), the aim of which is to reduce the risk of financial crises.

Working Paper: News Uncertainty in Brexit UK

After the Brexit referendum, the behavior of the UK economy defied widespread expectations, as it did not exhibit a V-shaped recession, but a slow decline in production. We show that this pattern of propagation arises when uncertainty is about future, rather than current fundamentals, and if the expected duration of uncertainty is sufficiently long.

Foreign Exchange and Liquidity and Monthly Balance Sheet, July 2020

​In July 2020, the foreign-exchange reserve decreased by kr. 0.1 billion to kr. 455.6 billion.

Net purchases for more than kr. 11 billion in 2020

Private investors have had net purchases of UCITS fund shares for more than kr. 11 billion. At the end of June 2020, the market value of households' UCITS fund shares amounted to kr. 346 billion.

Big appetite for foreign stocks during the corona crisis

Following the large price declines in the global stock markets in March, private Danish investors have purchased a lot of foreign shares. In total, they have purchased foreign shares for kr. 4.0 billion in the period from March to June, which includes some of the largest monthly foreign share purchases ever.

The Danes have kr. 796 billion invested in securities

Private Danish investors own securities worth of kr. 796 billion at the end of June 2020. These are securities that Danes own through banks and trading platforms, either in the form of free funds or in individual pension deposits. In addition, Danes own a significant amount of securities through their labor market pensions.

Unchanged loan demand from NFCs

Danmarks Nationalbank's lending survey shows that the loan demand from the banks' existing corporate customers is overall unchanged from 1st to 2nd quarter of 2020 (net figure is 1.7). This is in contrast to the credit managers having a clear expectation that the demand would increase. Several of the banks mention i.a. the public aid packages as a possible explanation to the expectations not being fulfilled. 7 banks expect, however, that the loan demand increases in 3rd quarter, while 10 banks expect that the demand is unchanged.

Using input-output methods and high frequency indicators in assessment of GDP in 2020

The memo gives a technical summary of a system developed and used in Danmarks Nationalbank's assessment of the economic impact of the covid-19 crisis. The system combines input-output tables from the national accounts, the input-output model and Danmarks Nationalbank's high-frequency indicators. This allows for a high degree of details with regard to industries and final demands combined with high frequencies indicators for subgroups of private consumption possibly of daily frequencies. (Memo available in Danish only)

Working Paper: Monetary and Fiscal Policies in Times of Large Debt Unity is Strength

We study the implications of a coordinated fiscal and monetary strategy aiming at creating a controlled rise of inflation to wear away a targeted fraction of debt. Under this strategy, the fiscal authority introduces an emergency budget with no provisions on how it will be balanced, while the monetary authority tolerates a temporary increase in inflation to accommodate the emergency budget.

Losses on dollar assets contributed to pressure on the Danish krone

A new publication by Danmarks Nationalbank compares the pressure on the krone during the corona crisis with three earlier periods of krone pressure over the past 12 years. The pressure on the krone in March this year was unusual because it was not impacted by for example speculation about the Danish fixed exchange rate policy. Rather, it was caused by Danish institutional investors selling kroner in response to a decline in the value of their foreign assets.

Pressure on the Danish krone in times of crisis

The Danish krone was under weakening pressure in March 2020, following the outbreak of covid-19. Contrary to earlier episodes of pressure, the pressure in March 2020 was not driven by speculation about the sustainability of the Danish fixed exchange rate policy or the euro. The pressure in March was driven by the domestic insurance and pension sector and the investment fund investors, who sold kroner in response to losses on their foreign exchange assets.

Foreign Exchange and Liquidity and Monthly Balance Sheet, June 2020

​In June 2020, the foreign-exchange reserve decreased by kr. 6 million to kr. 455.8 billion.

New tools for assessing the economy

During the corona crisis, Danmarks Nationalbank has implemented new tools for its ongoing monitoring of the Danish economy. These include models for nowcasting gross domestic product, GDP, growth. Nowcasting models are advanced statistical models that process a wide range of key economic indicators and real-time indicators as they are released. The models include figures for employment, unemployment, inflation, house sales and a number of other key economic indicators as they are released. That way, the models can produce nowcasts of GDP growth for the current quarter.

BIS to establish Innovation Hub Centre in Stockholm

​The Bank for International Settlements, BIS, announced today to establish a BIS Innovation Hub Centre in Stockholm in collaboration with the central banks in Denmark, Iceland, Norway and Sweden. The Nordic Innovation Centre will work to deepen the analysis of technological financial innovation relevant to central banks.

Denmark's IIP reduced by kr. 289 billion

Denmark's international investment position, IIP, decreased in the 1st quarter of 2020 by kr. 289 billion, corresponding to a decrease of 16 per cent since the last quarter. The decrease is especially driven by large changes in share prices of foreign assets.

Danes' financial wealth decreased with kr. 454 billion in the 1st quarter

After a decline of kr. 454 billion in the 1st quarter, Danish households' net financial wealth – the difference between financial assets and debt – reached kr. 3,847 billion. This corresponds to a decrease of kr. 166 thousands for the average household since the last quarter, and thus the household's net financial wealth totals kr. 1.41 billion on average.

Danes bought foreign stocks in April and May

Danish investors have bought foreign listed portfolio stocks this year for a total of kr. 25 billion. The purchases were made especially in April and May in the wake of the large falls in the global stock indices. Buyers are primarily the insurance and pension sector, but other professional investors and private Danish investors have also bought.

Foreign investors bought Danish stocks

There has been a strong demand for Danish stocks from foreign investors who bought for kr. 3 billion in May. That was also the case in the first two months of the year, while foreign investors sold stocks in March. In total, the net purchase of Danish stocks from foreign investors amounts to kr. 17 billion the past year.

Bank loans to NFCs at its lowest for 6 years

Danish non-financial corporations (NFCs) reduced their loans from Danish banks by kr. 12.5 billion in May. This corresponds to a year-on-year credit growth of -1.6 per cent. As a result, total NFC lending is now down to kr. 432 billion. The year-on-year credit growth for NFCs has not been negative since the end of 2017. Although mortgage credit lending to NFCs has been increasing, it has not been enough to offset the decline in bank lending to NFCs.

Fixed rate loans have the lead in 59 municipalities

In 59 of the 98 Danish municipalities, fixed rate loans now comprise the majority of homeowners' mortgage loans. That is 35 municipalities more than just a year ago. The development is a result of the decreasing interest rates over the past year, which have increased the Danes' appetite for fixed rate loans in connection with restructuring of existing loans and obtaining new loans. In addition, many have opted to increase their fixed rate loans in connection with a conversion to a lower interest rate. At the national level, however, loans with variable interest rates still dominate with a share of 51.2 per cent of the Danish homeowners' total mortgage loans of kr. 1,691 billion.

Governor Hugo Frey Jensen retires

The effects of the corona shock on the banking sector and the real economy

This economic memo isolates two channels through which the "corona shock" affects the economy: a fall in asset prices and an increase in the dispersion of future shocks to the economy. Both shocks are contractionary, but they operate through different channels. A CCyB that is reactivated early reduces the impact of an asset price shock the most. In contrast, a CCyB that is reactivated late reduces the impact of a volatility shock the most.

What's the story behind Danish households' rising debt?

Over the past four decades, debt has increased significantly faster than incomes and accounts for approx. 260 per cent of the disposable income of Danish households in 2020. This analysis presents a measure of household structural credit and reviews the economic factors that have contributed to this development. Besides higher incomes, greater wealth and lower borrowing costs have led to increasing debt over a long period of time. Both lower interest rates and regulatory easing have contributed to this development.

The COVID-19 crisis reduces Danish growth potential

Due to the covid19-crisis, it is projected that Danish potential GDP will grow at a slower pace in the coming years. Potential GDP is reduced by 1.1 per cent in 2022 compared to Nationalbanken's forecast from before the covid19 outbreak. The downward revision reflects a decline in structural employment as well as productivity. (Memo available in Danish only)

Working Paper: The Macroeconomic Effects of Shadow Banking Panics

We study the effects of shadow banking panics in a macroeconomic model with a rich financial system, including deposit-financed retail banks and wholesale-financed shadow banks. The model can quantitatively match the dynamics of key variables around the US financial crisis. Wholesale funding market interventions akin to those implemented by the Federal Reserve in 2008 reduced the fall in output by about half a percentage point. Generally, central bank interventions reduce output volatility and the likelihood of banking panics.

Outlook for the Danish economy - Prospects of gradual economic recovery

Behavioural changes and measures to contain the spread of coronavirus have hit the Danish and international economy hard, and prospects are for a record economic downturn in the 1st half of 2020. Since mid-April, the Danish economy has gradually reopened and activity has picked up. GDP is expected to contract by 4.1 per cent this year, driven primarily by developments in the first half of the year. The recovery is likely to be sluggish, especially because of subdued foreign demand. As a result, the economy is expected to be in a mild recession by the end of 2022.

It will take time for the economy to recover

​In a new projection for the Danish economy, Danmarks Nationalbank estimates that the gross domestic product, GDP, will contract by 4.1 per cent this year. Next year, a partial recovery of economic activity is expected, with a 4.2 per cent expansion of GDP, while GDP growth in 2022 will be 1.6 per cent.

Monetary and financial trends - Stabilisation of financial markets after COVID-19 turmoil

Financial markets have stabilised after the turmoil in March triggered by COVID-19 and the subsequent actions taken to contain the virus. The turmoil on financial markets led temporarily to higher financing costs for both corporates and households. The financial conditions remain very accommodative, supporting developments in the Danish economy. Monetary policy rates have remained unchanged since 20 March, after Danmarks Nationalbank increased the interest rate on certificates of deposit by 15 basis points as a result of interventions in the foreign exchange market.

Expansions do not necessarily end because of old age

The current expansion in the US has been historically long. In Denmark, the expansion has lasted for 10 years. This has increased focus on whether expansions die of old age. The length of expansions varies a lot across 19 OECD countries. About 20 per cent of all expansions have lasted longer than the current Danish expansion. Imbalances increase the risk of expansions dying. Recessions are short, but become longer if imbalances were present during the preceding expansion.

Central government borrowing strategy in the 2nd half of 2020

The target for issuance of domestic government bonds in 2020 is maintained at kr. 125 billion. The on-the-run issues will remain unchanged, and focus will be on issuance in the 2- and 10-year nominal bonds. Part of the borrowing requirement in 2020 is met by issuances of short-term papers.

Large savings go hand-in-hand with high debt

Pension savings in Denmark have increased sharply since the 1990s. Over the same period, Danish household debt has also risen strongly. On average, a kr. 100 increase in pension wealth leads to a kr. 26 increase in total debt. This is one of the conclusions of a working paper in which economists Andreas Kuchler and Henrik Yde Andersen, Danmarks Nationalbank, and Niels Lynggård Hansen, the European Stability Mechanism (ESM), have analysed extensive data on pension savings and household debt.

Working Paper: Mandatory pension savings and long-run debt accumulation: Evidence from Danish register data

This paper uses two decades of individual level information from Danish administrative registers to investigate the connection between pension wealth and debt accumulation. A 1-dollar increase in pension wealth leads to a 26-cent rise in total debt. Liquidity constraints seem to play a key role, and we couple the crowding-out effect with an increased propensity to use interest-only mortgages.

Worker flows and reallocation in COVID-19 exposed sectors in the Danish economy

Past worker flows show that among the sectors hit hard by the COVID-19 epidemic, workers in "Transportation" accumulate relatively more human capital. In the event of large worker reallocation, this sector's productivity would be hit harder and need longer to recover due to the loss of firm and sector-specific knowledge and skills of the departing workers.

Large losses on investments

In the first quarter of 2020, the insurance and pension sector lost kr. 258 billion on their investments, corresponding to 6 per cent. In March alone, the loss was kr. 293 billion (7 per cent).

Foreign Exchange and Liquidity and Monthly Balance Sheet, May 2020

​In May 2020, the foreign-exchange reserve increased by kr. 4.9 billion to kr. 455.8 billion.

Solid demand for Danish bonds

In April, foreign investors bought Danish bonds. Foreign investors bought, among other things, fixed-rate mortgage bonds and have increased their ownership to 34 per cent. Their ownership share has been in significant growth for many years, rising by 3.5 percentage points since the October pay date last year.

Companies' payouts to shareholders on par with previous years

At the end of the dividend season in April, Danish listed companies, which are not banks, had paid out just below kr. 42 billion to shareholders in the form of dividends and repurchases of own shares. It is on par with what has typically been paid out in the last 5 years. The banks, on the other hand, have greatly reduced their payments.

Danmarks Nationalbank's comments on the recommendations of the Government's expert commission

Banks are facing hard times

Credit institutions are facing hard times

The coronavirus outbreak has influenced banks’ results in the 1st quarter of 2020 reflected in the largest impairment charges for the largest banks since the 2008-09 financial crisis. How severely the economy and the banks will be affected remains highly uncertain. Credit institutions today enjoy both better capitalisation and higher excess liquidity than in the run-up to previous downturns. But it is important for institutions to ensure sufficient distance to the requirement through issuance of MREL-eligible debt instruments.

A prolonged recession could squeeze banks

A stress test of the banking sector shows that most banks should have sufficient capital to weather a steep, but temporary economic downturn. The banks are better capitalized than before the financial crisis and can withstand greater losses than those incurred during the financial crisis. If the downturn turns into a longer lasting recession, more banks are at risk of breaching their capital requirements.

Increased loan activity, but limited effect on total corporate lending

In March and April, the volume of new and renegotiated loans from the banks to Danish corporate customers reached kr. 40 and 44 billion, respectively. The scope is above the level for 2019, but not atypical compared to previous years' loan activity. The loan activity has so far had a limited effect on the banks' total corporate lending, which has increased by kr. 7.1 billion from February to April.

Danes' now pay less in interest than fees

Since March, Danes' interest payments have been below the administration fees on their mortgage loans. This is mainly due to the fact that the average interest rate has been reduced significantly over a longer period. The drop of the interest rates has meant that interest expenses have more than halved since 2014.