Denmark’s central bank predicts Ukraine war will slow economy

The Russian invasion of Ukraine is likely to slow economic growth in Denmark, the Nordic country’s central bank said on Wednesday.

Director of the Danish National Bank Lars Rohde
Director of the Danish National Bank Lars Rohde at a September 2021 press briefing. Photo: Liselotte Sabroe/Ritzau Scanpix

In its latest prognosis for 2022, Nationalbanken forecast the economy will grow by 2.1 percent this year. That is a notable drop from the previous forecast, 3.1 percent, which was made in September 2021.

The war in Ukraine is expected to weaken Danish growth by 1 percent in isolation.

This is due in particular to higher price increases and more uncertainty around consumption and investments globally and in Denmark.

“The human consequences of the invasion are unbearable and my thoughts go to the Ukrainian people,” the director of the National Bank, Lars Rohde, said in a statement.

“If we are to look at the economy in the midst of all of this, the invasion and wide-ranging sanctions against Russia will have consequences for businesses and households,” he said.

“The assessment of the National Bank is that the war will reduce GDP growth by around 1 percent and increase inflation by around 2 percent this year,” he said.

READ ALSO: Why is food becoming more expensive in Denmark?

Last year saw Denmark’s GDP increase by 4.1 percent, the largest increase since 1994. Inflation was 1.9 percent in 2021.

The remarkable growth in GDP, which came as the country emerged from Covid-19 shutdowns, is not expected by the National Bank to be repeated this year. The new forecast of 2.1 percent growth is predicted to be repeated in 2023 according to the latest prognoses.

It is then expected to reach 1.7 percent in 2024.

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How has Denmark’s economy responded to start of 2022?

Results from the first quarter of 2022 indicate that Denmark’s economy saw a slight downturn during the period.

How has Denmark’s economy responded to start of 2022?

The national data agency, Statistics Denmark, estimated on Monday based on preliminary data that the economy shrank by 0.1 percent in the first three months of this year.

The measure of the economy comes from an indicator of the national GDP.

Statistics Denmark notes that the preliminary figures are subject to uncertainty, due in part to the Covid-19 pandemic.

Nevertheless, a measured reduction to GDP by 0.1 percent in the first quarter of 2022 is likely to be related to changes in the public sector and a downturn for household service industries, the agency writes.

A major factor in reduced public spending is the phasing-out of government-funded responses to the Covid-19 crisis, notably the national testing programme, an analyst suggested.

READ ALSO: Covid-19: Denmark halves test capacity due to low infection numbers

“It’s primarily a fall in activity in the public sector that has driven a drop in GDP in the first quarter,” senior economist with the Danish Chamber of Commerce, Tore Stramer, told news wire Ritzau.

“The phasing-out of the test programme and similar activities from February onwards has simply lowered activity markedly in the health sector,” he said.

Despite the overall drop in GDP, sectors including industry, construction and business services had a strong quarter.

The results should also be seen in the context of a strong end to 2021 for the Danish economy.

A light downturn in recent months is not unexpected, said Morten Granzau of the Confederation of Danish Industry (Dansk Industri, DI).

“The trend will probably continue because of very high inflation along with the effects of the war in Ukraine and sanctions against Russia,” Granzau said.

“We are heading towards a new economic reality,” he said.

READ ALSO: Food and energy prices rocket as Danish inflation hits 40-year high