Falling Sterling a Threat to Denmark

Denmark may not be the first country you would think of when assessing the impact of Brexit, but the Nordic economy is already suffering from the fall of the British pound, analysts say.

Amid a low-growth environment, a significant output gap, indebted households and concerns over the impact of negative rates on the housing market, Denmark is already facing an uncertain future without Brexit, CNBC reported.

“The fall in sterling is affecting the Danish economy already,” Jan Storup Nielsen, chief analyst, at Nordea Bank told CNBC on Friday.

Before the Brexit vote, the pound was nearly 9.8 Danish crown, or krone ($1.45). That has now dropped to about 8.27 crowns. “The significant weakening of the pound against the Danish krona is hurting exports, including on agricultural products,” Nielsen added.

According to Nordea, Danish exports to the UK dropped nearly 0.5 billion Danish crowns since the June vote. It is now at 2.75 billion DKK.

The Danish economy is gradually recovering from the 2008 financial crisis, but investment and exports are two of the main issues that the government needs to fix.

In its latest economic assessment to Denmark, the International Monetary Fund projected a 1.3% gross domestic product growth rate in 2016 and 1.6% in 2017.

The fund warned: “A sharper than expected slowdown in Europe or in emerging markets could derail the modest recovery, given Denmark’s deep integration in the world economy.”

“The disruption of trade and financial flows that are likely to accompany a Brexit would compound these risks,” the IMF added.

Claus Hjort Frederiksen, Denmark’s finance minister, highlighted in early October worries over trade policy. “Trade-friendly policies aimed at reviving confidence and raising productivity are needed,” he said.

“The prospect of the UK leaving the EU adds another major source of economic uncertainty. In negotiating the future relations between the UK and the EU, as well as with other partners, all efforts should be made to minimize this uncertainty and to ensure continued close economic ties,” Frederiksen said.

Other analysts expect the impact to be marginal over the short term, but the falling sterling is a longer-term concern for Danish exporters.

“We expect Brexit to have only a marginal impact on the Danish economy in the short term,” Teis Knuthsen, chief investment officer at Saxo Private Bank told CNBC via email.