Perspectives

Not spared

EcoPerspectives // 2nd quarter 2020  
25  
economic-research.bnpparibas.com  
Denmark  
Not spared  
The Coronavirus epidemic is also sweeping Denmark, which has now introduced relatively strict lockdown measures. With its very  
open economy (exports account for more than 50% of GDP), GDP growth will contract in 2020. To mitigate the shock, the government  
has launched major fiscal support measures, comprised notably of paying compensation for all or part of wages for a 3-month period.  
The central bank is ensuring DKK and EUR liquidity, after signing a swap arrangement with the ECB.  
Like many countries around the globe, Denmark must face up to the  
1
- GDP Growth and inflation  
Coronavirus pandemic, a major economic and health crisis that will  
result in a contraction of GDP in 2020. Although the country does  
(
Y/Y, %)  
1
GDP Growth  
Inflation  
not seem to have been hit very hard to date , the government  
Forecast  
Forecast  
decided to introduce relatively strict confinement measures as of 13  
March. Schools, universities, restaurants and most other public and  
cultural spaces have been closed, while non-essential public and  
private sector employees are urged to work from home.  
5
4
3
3.8  
2.4  
2.4  
2
1
0.7  
0.7  
0.6  
Economic threat and massive fiscal measures  
0.2  
0
The crisis is expected to have a heavy impact on the economy, with  
a sharp contraction of GDP in Q2 2020. To handle the crisis, the  
government has adopted strict measures, taking advantage of its  
substantial manoeuvring room (recurrent fiscal surplus since 2015  
and a mild debt ratio of 33% of GDP).  
-1  
-2  
-3  
-
2.5  
2018  
2019  
2020  
2021  
2018  
2019  
2020  
2021  
Source : National Statistics, BNP Paribas  
2
- Economic stimulus measures  
The biggest measure calls for the State to cover the payment of  
company operating expenses to limit job loss due to the shutdown  
of businesses. These measures are crucial in a country where  
household debt is very high (281% of net disposable income, the  
highest in the OECD) and supports the housing market. Under the  
Tripartite Agreement on Temporary Wage Compensation, which  
was passed on 14 March and strengthened on 31 March, the state  
will pay compensation for 75% of the wages of companies and self-  
employed workers experiencing hardships during a 3-month period  
-
Monetary policy: to counter pressures on the Danish krona (DKK)  
and defend its euro peg, the central bank initially raised its key rate to  
-0.60% from -0.75%. Pressure was then alleviated following the  
reactivation of a swap line with the ECB (20 March), the maximum  
amount of which is EUR 24 bn.  
- Fiscal policy: on 14 March, all parties in the National Assembly  
agreed to a DKK 55 bn economic stimulus package. The stimulus  
measures include paying financial compensation to self-employed  
workers and companies (Tripartite Agreement on Temporary Wage  
Compensation) in order to reduce their operating costs. The  
government also said it would offer guarantees on corporate loans for  
up to DKK 60 bn (more than 5% of GDP). These unprecedented  
measures are much larger than those taken following the 2008-09  
crisis. The Danish government is seeking to avoid the threat of  
recession in 2020 by stimulating production and employment in the  
second half.  
(
9 March to 9 June), within the limit of DKK 30,000 (EUR 4000) per  
person per month.  
Like (nearly) every other country, the package also provided direct  
transfers under certain conditions (subsidies to help pay rent and  
other fixed charges), deferred tax and VAT payments, and  
guaranteed loans to companies for a total of DKK 60 bn (see box).  
Source: Government, central bank  
1
The official contamination rate (500 cases for a million inhabitants) is  
relatively high in Denmark, but great caution is needed when making  
comparisons: at 31 March, the country had 90 Coronavirus victims, or 13  
times fewer than Italy as a share of the population.  
QUI SOMMES-NOUS ? Trois équipes d'économistes (économies OCDE, économies émergentes et risque pays, économie bancaire) forment la Direction des Etudes Economiques de BNP Paribas.
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