Denmark Raises GDP Forecast as Covid Crisis Milder Than Feared

(Bloomberg) -- Denmark’s government expects a milder recession than first feared after the economy proved surprisingly resilient to the coronavirus pandemic.

The finance ministry now sees gross domestic product shrinking 4.5% this year, compared with an expected contraction of 5.3% back in May, according to documents seen by Bloomberg News. The ministry is due to publish its revised forecast later on Monday.

Read: Denmark’s Economy Shrank Less Than Previously Indicated in 2Q

Despite Denmark’s decision to impose a strict lockdown well before most other European nations, consumer spending in the country took less of a hit than originally expected, the documents show. There were also fewer bankruptcies than estimated earlier in the year, and government support packages were tapped to a far smaller degree than predicted.

Finance Minister Nicolai Wammen acknowledged the “deep economic slump” that Denmark is facing, but said “we have also seen beginning signs of recovery,” in the document.

Denmark also raised its estimate for GDP in 2021, and now sees growth of 4.2% compared with a May prediction of 4%.

Denmark’s Social Democrat government is planning a structural budget deficit of 0.5% in 2021, which is the maximum allowed without breaching restrictions on European Union member states, newspaper Borsen said, citing a separate government document. Other initiatives in the 2021 budget include a 9.2 billion kroner ($1.5 billion) stimulus reserve to fight the fallout of the pandemic.

Denmark Will Borrow More Money to Finance Economic Stimulus

On Sunday, Denmark said it will raise its financing need to 374 billion kroner in 2020 to fund the extra stimulus. In 2021, the government expects to need 209 billion kroner, which it will generate either by turning to debt markets or by drawing on its own account at the central bank.

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