Denmark’s central bank drastically cut its forecast for gross domestic product, and now sees a painful recession this year, after the government’s response to the coronavirus pandemic brought the economy to a near standstill.
GDP will contract somewhere between 3% and 10%, the Copenhagen-based bank said on Wednesday.
The bank “has listed three scenarios, illustrating how severely the Danish economic activity may be affected,” it said. “These scenarios are subject to exceptionally high uncertainty.” It had previously expected a growth rate of 1.5% in 2020.
“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,” Governor Lars Rohde said.
Denmark was fast to close schools, restaurants and cafes and among the first in the European Union to shut its borders in an effort to stem the spread of the coronavirus. To help the economy cope with the fallout, the government has unveiled emergency measures worth more than $40 billion.
There are signs that the Danish approach is slowing the contagion. Prime Minister Mette Frederiksen, who has won widespread praise for her swift response to the crisis, said Denmark might now be in a position to gradually return to normal after Easter, if the spread of the coronavirus continues to slow.
In its report on Wednesday, the central bank said its main scenario points to public debt growing to roughly 40% of GDP this year (in part as the economy shrinks) from 33%. It also said the state has the necessary buffers to cope with any long-term need for support measures.