By Jacob Gronholt-Pedersen and Stine Jacobsen
COPENHAGEN (Reuters) – A boom in Denmark’s economy may be replaced by a contraction of as much as 10% this year as the coronavirus outbreak hits the Nordic economy, the country’s central bank said on Wednesday.
The bank, which had previously forecast 1.5% GDP growth in 2020, however said that strong public finances put Denmark in a favorable position to get the economy back on track.
Its latest projection is more pessimistic than that of economists at the country’s biggest banks, as the central bank warns the export-driven economy will continue to suffer from weak demand from abroad even after Danish society reopens.
“The boom in the Danish economy has come to an abrupt end in early 2020,” the central bank said in a statement.
Depending on the depth and length of the crisis, the economy may contract between 3% and 10% this year, with its main scenario forecasting a 5% contraction, it said.
In comparison, economists at Danske Bank and Nordea say they expect the Danish economy to fall 2.5% and 3%, respectively, this year.
“In Denmark, our starting point for getting the economy back on track when the outbreak subsides and the measures are rolled back is strong. But it is going to hurt, before we get there,” central bank governor Lars Rohde said.
The Nordic country has reported 90 coronavirus-related deaths, but saw the number of hospitalizations of corona patients fall on Tuesday for the first time.
The country’s Prime Minister Mette Frederiksen said on Monday that the government may gradually lift a lockdown after Easter if the number of coronavirus cases and deaths remain stable.
The government has announced economic aid packages to the businesses struggling from a lockdown that will cost the state more than 60 billion Danish crowns ($8.8 billion).
“The rescue packages adopted by the Danish parliament are helping to buoy up firms and employees,” says Rohde. Still, the central bank projects that one-third of private jobs in Denmark will be affected by the lockdown.
A recovery of the economy is highly dependent on developments abroad, the central bank warned.
“Once the economic restrictions are phased out, more conventional fiscal stimulus will probably be required to underpin demand,” said Rohde.
With public debt at around 33% of GDP, much lower than the OECD average, Denmark has room to finance support for its businesses.
The central bank has significantly raised the target for government bond issuance this year and has moved forward an auction for a new 30-year bond, which will be held later on Wednesday.
As a result of increased financing needs, the central said it expects public debt to increase to more than 40% of GDP this year.
(Reporting by Jacob Gronholt-Pedersen and Stine Jacobsen; editing by Philippa Fletcher and Raissa Kasolowsky)