9 December 2020
Coronavirus infection rates have increased since September, resulting in the reintroduction of restrictions to contain the spread of infection. This delays Danish economic recovery. Conversely, the expected roll-out of an effective vaccine has moved closer, and consequently also the time at which many restrictions can be expected to be eased again.
Economic activity recovered in large parts of the economy in the third quarter after the lockdown in spring, resulting in a gross domestic product (GDP) increase of 4.9 per cent against the second quarter. Despite the large increase, GDP remained 4.1 per cent below the level at the start of 2020.
Danmarks Nationalbank has updated its forecasts for the Danish economy and now expects GDP to fall by a total of 3.9 per cent in 2020, followed by a subsequent increase of 2.9 per cent and 3.3 per cent in 2021 and 2022, respectively.
The outlook covers a two-speed economy. Restrictions are still limiting travel, among other activities, as well as a number of other services, and are shifting consumption towards non-restricted sectors, several of which are generating significantly higher revenue than before the outbreak of the pandemic. The planned extension of the 'Housing Job Scheme', which allows tax deductibility for a range of services and home renovation work, is not expedient, as it stimulates activities in sectors which already have a high activity level.
"In the current situation, there's no need for further easing of fiscal policy, as this especially boosts the demand in those parts of the economy which are not subject to restrictions," says Lars Rohde, Governor of Danmarks Nationalbank.
Sectors affected by restrictions may still need temporary support during the winter. Public debt is low, which generally provides good leeway for providing financial support.
"The relief schemes mustn't be of a permanent nature, and, with the rapid roll-out of an effective vaccine, the current relief schemes shouldn't have a long life," says Lars Rohde.
Enquiries can be directed to press advicer Ole Mikkelsen on tel. +45 3363 6027.