Denmark Faces Less Economic Pain Than EU After Fast Lockdown

(Bloomberg) -- Denmark says its economy will contract less than the European Union on average this year, after it eased restrictions on movement earlier than other countries.

Gross domestic product will shrink 5.3% in 2020, the Finance Ministry in Copenhagen said on Tuesday. By contrast, the European Union is set to contract 7.4%.

After imposing a strict lockdown before many other countries in Europe, Denmark last month started rolling back its curbs on movement, and has since reopened much of the economy amid signs the contagion rate has slowed. As of Monday, Denmark had reported 563 Covid-19 related deaths; its fatality rate per 100,000 is around a quarter that of neighboring Sweden.

Nicolai Wammen, Denmark’s finance minister, said the situation remains “serious.” He warned that the Covid-19 crisis “will in all likelihood affect the Danish economy for several years into the future. But we’ve laid the stones for a path out of the crisis and we’ve already taken the first important steps.”

Speaking to reporters in the Danish capital, Wammen said the government is likely to end up spending more than the roughly 400 billion kroner ($60 billion) in emergency measures already passed. But he made clear he’s also looking into phasing out that support once the worst is over.

Denmark vs. Sweden

Though historically deep, Denmark’s recession is set to be milder than in Sweden, where Finance Minister Magdalena Andersson has predicted a 7% contraction in 2020.

Sweden responded to Covid-19 with a controversial model that left much of its society open throughout the pandemic. That fed speculation that its economy might be spared the ravages facing countries that imposed strict lockdowns. But recent data challenge that notion.

Las Olsen, chief economist at Danske Bank, said he thinks Denmark’s economic decline might be even less severe than the government’s forecast.

“In Denmark, things have so far developed a lot better than one might have feared,” Olsen said. “First and foremost, we’ve reopened [the economy], and we can see clear signs that consumers and businesses are actually reacting to that.”

Olsen also pointed to Denmark’s relatively robust export industry, which relies heavily on health-care companies like Novo Nordisk, the world’s biggest producer of insulin.

Even so, the cost of the economic shock Denmark has already suffered is unprecedented. Its debt office now estimates it will need to generate $43 billion, or over three times the funding previously expected, to help pay for the damage.

“This shows how huge the bill is,” said Jan Storup Nielsen, chief analyst at Nordea Markets in Copenhagen.

AAA-rated Denmark has so far been able to tap markets at historically low rates. Its benchmark 10-year bond trades at a negative yield, and its entire yield curve up to 20 years traded below zero not that long ago.

Source: Danish Finance Ministry

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