Perspectives

Uncertainty remains

st  
Eco Perspectives // 1 quarter 2021  
economic-research.bnpparibas.com  
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8
DENMARK  
UNCERTAINTY REMAINS  
The Danish economy has quickly rebounded after the reopening of the borders but a complete catch-up will take  
time since the resurgence of the Coronavirus epidemic keeps the country’s economic situation uncertain. Services  
exports were hard hit by the crisis in 2020, but are offset by a surge in Danish household consumption, supported  
by government measures. Fiscal policy should remain accommodative in 2021 and the Central Bank of Denmark will  
continue to defend its peg with the euro.  
Danish GDP rebounded by 4.9% (q/q) in the third quarter of 2020, but  
GROWTH AND INFLATION (%)  
failed to compensate the Q2 sharp fall of 7% (q/q). GDP is expected to  
contract by 3.9% over the year. In 2021, growth is expected to rebound  
GDP Growth  
Inflation  
by 3.5% according to the European Commission estimates. However,  
new measures to fight the Covid-19 pandemic and a weaker external  
environment could undermine the recovery.  
Forecast  
3.5  
Forecast  
4
3.5  
.0  
2
.8  
3.0  
2.5  
2.0  
2.4  
1.3  
1
.1  
HOUSEHOLDS REGAIN CONFIDENCE  
1.5  
0
.7  
1.0  
0.5  
0.0  
0.3  
The Danish economy’s recovery depends on the resumption of world  
trade. Since the beginning of the crisis, services exports have been  
hit hard, falling by 11.6% in Q2 2020, mainly due to the absence of  
foreign tourists. The rebound in Q3 (+5.6%) is far from sufficient to  
allow exports to return to their 2019 level. In addition, the prospect of  
a hard Brexit could add an additional drag, as the UK is the Denmark’s  
fourth largest trading partner.  
-
-
0.5  
1.0  
-1.5  
2.0  
-2.5  
-
-
-
-
-
3.0  
3.5  
4.0  
4.5  
-3.9  
2020  
2019  
2021  
2022  
2019  
2020  
2021  
2022  
After falling by 6.38% (q/q) in Q2 2020 and despite a rebound of 3.3%  
CHART 1  
SOURCE: EUROPEAN COMMISSION, BNP PARIBAS  
(
t/t) in Q3, business investment is unlikely to return to its pre-crisis  
level until a vaccine is widely spread in 2021. The second wave of the  
Covid-19 pandemic eroded the confidence of business leaders which  
remains low in Q4 (the manufacturing PMI in November reached 47.7)  
and is unlikely to improve in H1 2021. The housing market has reboun-  
ded strongly since the end of June, and real-estate prices have risen  
In H2 2020, the government rapidly replaced the broad subsidy  
programmes of the first lockdown with more targeted measures aiming  
at companies forced to shut down and their employees. Fiscal policy  
should still remain expansionist in 2021 and 2022 and will continue  
to widen the fiscal deficit, which will probably swell to 3.4% of GDP in  
1
above pre-crisis levels .  
Household consumption has picked up rapidly since the end of the first  
lockdown in March 2020 and recovered to pre-crisis levels as of June  
2
020. Over the DKK 66 billion in government loans guarantees made  
available to companies in 2020, only DKK 4.8 billion were claimed. The  
remaining amounts could therefore still be granted to companies facing  
difficulties in 2021. Large training programmes will also be launched.  
The agenda for structural reforms, and for the ecological transition in  
particular, will be maintained in 2021 and 2022.  
2
4
020. It should therefore decline by only 2% in 2020 and increase by  
% in 2021. This optimism among households is expected to continue  
thanks to government support measures to consumption and labour  
2
market resilience . Part of the special pension scheme was paid to  
households in October, which triggered an increase in their incomes  
amounting 2.6% of GDP. Moreover, the recovery of consumption would  
increase price volatility in 2021.  
Completed on 7 December 2020  
During lockdown in April and May 2020, inflation dropped to 0% before  
rising to 0.2% in October 2020. This sharp slowdown is due to a deep  
drop in oil prices. It would have been even more pronounced without  
3
the introduction of an additional tax on tobacco in April . Inflation is  
expected to accelerate in 2021, to nearly 1%. The central bank’s top  
priority is to protect the DKK peg to the euro, which was threatened as  
the Danish krone has regularly exceeded the peg (EUR 0.1340 against  
DKK 1). The central bank said it is open to massive selling of DKK to  
defend its value. The key policy rate was cut by 15bp to -0.6% in March  
2
020 and is unlikely to be lowered again in 2021.  
1
2
House prices rose 4.3% in Q3 2020, compared to 3.6% in Q4 2019.  
The labour market participation rate dropped 3% during the first lockdown, but half of it  
was recovered by August 2020.  
3
The price of a pack of cigarettes increased 24% in April following the introduction of a to-  
bacco tax, rising from DKK41 to DKK55 a pack. The price will rise to DKK60 in January 2022.  
The bank  
for a changing  
world  
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