Denmark’s economy hardest-hit since global economic crisis but worst may be over

2020 was the worst year for the Danish economy since the global financial crisis of 2007-2008, according to latest figures from Statistics Denmark.

Denmark’s economy hardest-hit since global economic crisis but worst may be over
Photo: Emil Helms/Ritzau Scanpix

But the country’s economic struggle last year, primarily caused by the Covid-19 pandemic, was less severe than that seen in other countries.

Denmark’s GDP fell by 3.3 percent last, according to Statistics Denmark.

That represents a less severe downturn than the estimate of -3.7 percent published by the agency earlier in February. The economy shrank less in the first half of 2020 than previously thought.

Statistics Denmark notes in the new report that GDP shrank by 6.4 percent in the United States and by 3.5 percent in the EU in 2020.

“The fall in the Danish GDP of 3.3 percent for the year 2020 is thereby testament that Danish economy was less affected by Coivd-19 consequences than the rest of the European mainland,” the data agency writes.

And the country’s economy is probably now over the worst of the dip, according to an analyst.

“The coronavirus crisis initially sent the Danish economy to the canvas with a hefty blow to the jaw with a historic fall in GDP and large dip in employment. But the economy has since got back to its feet with progress in the last two quarters,” Arbejdernes Landsbank senior economist Jeppe Juul Borre said.

“The hardest part has been surpassed over time and we have got past the risk that it will go from bad to worse. I am optimistic on behalf of the economy that we will take quick steps towards better times with reopenings and vaccines,” he added, sounding a decisively positive note.

READ ALSO: Denmark announces easing of Covid-19 restrictions: Limited opening of schools and shops

Estimates for GDP growth are preliminary and adjusted as additional data is received. Statistics Denmark has stressed that figures for 2020 are associated with a larger amount of uncertainty than normal due to the coronavirus outbreak.

READ ALSO: Denmark’s economy ‘worst hit’ in Nordic countries by coronavirus

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Denmark’s central bank cuts interest rates in response to strong currency 

The central bank, Nationalbanken, has slightly lowered interest rates in response to the krone’s currently strong position against the euro.

Danish 50 krone notes in production. Denmark has adjusted its interest rates to maintain a consistent value of the krone against the euro.
Denmark has adjusted its interest rates to maintain a consistent value of the krone against the euro. Photo: Ólafur Steinar Gestsson/Ritzau Scanpix

Interest rates for current accounts, savings and loans are decreased by 0.1 percent, to 0.6 percent, 0.6 percent and 0.45 percent respectively.

“The interest rate decrease occurs based on Nationalbanken’s purchase of currency on the market,” the central bank said in a statement.

Nationalbanken is required to maintain a consistent exchange rate between the krone and the euro.

As such the bank is adjusting interest rates with momentum behind the Danish economy, job vacancies at a high level, house prices soaring and inflation conceivable.

“The National Bank has one mandate and one only. And that is to ensure the policy of foxed exchange with the euro. And we have seen in recent times that the krone has been a bit on the strong side and that the National Bank has sold Danish kroner,” Danske Bank senior analyst Olai Milhøj told news wire Ritzau.

“So now the dynamic will be changed a bit be reducing interest to make it a bit less attractive to hold Danish kroner,” he added.

The interest rate change is however discrete enough that it will likely only impact large scale speculators.

The change in the price of a euro is less than one øre (a hundredth of a krone) and is unlikely to impact interest rates offered by banks.