Global uncertainty, financial risks, stablecoin growth
Danmarks Nationalbank Governor Christian Kettel Thomsen outlined the central bank's perspective on the global economy and financial system. He highlighted significant global uncertainty, rising inflation expectations, and structural vulnerabilities in financial markets, while noting the robust Danish economy.
Uncertainty, inflation, and Danish resilience
Global economic growth faces significant uncertainty, with financial markets anticipating higher inflation and interest rate increases, partly driven by the conflict in the Middle East.
Energy prices have notably elevated short-term inflation expectations within the euro area.
Despite this volatile global landscape, the Danish economy demonstrates robust performance, with Danmarks Nationalbank's forecasts indicating continued resilience.
However, the central bank advises the new government to exercise caution regarding the full utilization of fiscal space up to 2035 and to avoid boosting demand beyond planned levels in the 2027 budget.
Sovereign debt and private credit vulnerabilities
Interconnectedness within the financial system can amplify market movements.
Sovereign debt levels remain high across major global economies, with projections for further increases.
While Denmark's public finances are strong, global fluctuations can still impact the country.
The private credit market has grown rapidly, especially in the US, introducing structural vulnerabilities.
Despite limited direct exposures for Danish banks, a negative shock could transmit broadly across the financial system, posing risks to financial stability.
Stablecoins: Future focus, not current threat
The stablecoin market has surged to $320 billion, with dollar-denominated assets comprising 98 percent.
While currently marginal in Denmark, this growth signals future risks of currency substitution.
Danmarks Nationalbank's DLT-based central bank money initiatives are a crucial, forward-looking step to secure the Danish Krone's primary settlement role.