Press briefing 21 March 2022

Danish economy well equipped for uncertain times

Published 21-03-2022

The Danish economy is strong and has been in a boom since 2021. Russia's invasion of Ukraine will however have consequences for the world economy. And the Danish economy, in line with other countries, is expected to be affected.

Hosts were: Minister for Employment Peter Hummelgaard, Minister for Climate, Energy and Utilities Dan Jørgensen, Minister of Finance Nicolai Wammen and Minister for Industry, Business and Financial Affairs Simon Kollerup

Freedom comes with a price

Russia's invasion of Ukraine has created a terrible situation that has sent millions of people fleeing. The West has expressed condemnation and imposed historically harsh sanctions in response to the Russian aggression.

The Russian actions will have inevitable costs for the world economy, and the Danish economy, in line with other countries, must be expected to be affected too.

The starting point for the Danish economy is strong. We have come through the pandemic well, employment is high and unemployment is low. But the crisis will affect both companies and households, and the consequences of rising energy prices will be noticeable. War comes with a price. There will be a cost for all of us.

Freedom and the struggle for peace and stability comes with a price. The message at the press conference was that Denmark is willing to pay that price. We can’t afford not to. Many Danes already feel the price directly. Among other things, when they refuel the car, shop for groceries or pay the heating bill. Some companies may also expect to see a decline in the order books.

Three scenarios for the effect of the war on the Danish economy

At the press conference, three scenarios for the Danish economy were presented. The scenarios are encumbered with great uncertainty, but they are suggestions of what we might face.

In the intermediate scenario, the Danish economy will be significantly affected by less growth in the export markets and higher energy prices. GDP growth this year will be reduced by approx. 1¼ percentage points, and inflation increases by approx. 2½ pct.-point. Thus, with the intermediate scenario, a growth of 1.6 per cent is expected this year.

The harsh scenario is based on a risk that the conflict will escalate further, including the halt of Russian gas supplies to Europe as a result. The economic consequences are greater, also in Denmark, where GDP growth is reduced by approx. 3 percentage points, and inflation increases by approx. 3½ pct.-point. Thus, in the harsh scenario, GDP this year is expected to be roughly unchanged compared to 2021.

In the mild scenario, energy prices are expected to deflect faster, while sanctions against Russia remain unchanged. In this scenario, the level of activity will continue to be lower in 2023 than previously expected. Thus, a growth in the mild scenario of 2.2 per cent is expected this year.

The scenarios show that the crisis will hit the Danish economy, but it will not pull the rug away from under us. Regardless of which economic scenario becomes a reality, it will have an impact on the Danish economy and on the Danes, among other things due to rising inflation. And in all three scenarios, it is expected that it will effect employment.

The gas supply

At present we are not in a situation where there is a shortage of gas, it was stated at the press conference. But that could change if Putin chooses to shut off gas to Europe, as Russian gas covers about 25 percent of total Danish consumption. We have a contingency plan ready so we can supply the homes, hospitals and others that are dependent on gas. We will be able to activate emergency stocks and, in the worst case, ask companies to reduce or completely shut down their gas consumption. There is an ongoing dialogue between authorities and the companies that may be affected by this situation.

Green solutions need to get going

The crisis requires a "green answer", it was stated at the press conference. Therefore, among other things, the green district heating must be turned up. At the end of the week, the National Association of Local Authorities and selected municipalities have been convened for discussions on how to set more pace in the area.

The war is not comparable to the corona crisis

We follow the situation very closely so that we can find the best solutions for the Danish companies and workplaces. But the war we are witnessing right now cannot be compared to the corona crisis. Back then, there was a need for us to be able to keep a safety net under companies for a short time and temporarily.

There is just nothing short-term or temporary this time, partly because the war is changing the market, value chains and production significantly. Therefore, as a starting point, there will not be the same aid packages as was seen during the corona crisis.

Advice and guidance for companies

The Danish government and authorities offer advice and guidance for companies. Among other things in relation to green conversion, new markets and preservation of jobs. It can e.g. be about cybersecurity, how to handle the sanctions, or how to receive the Ukrainians who come here and want a job. Companies are encouraged to make use of the authorities' advice services.

The coming time will be difficult

The Danish labor market is in a really good place. For the ninth month in a row, Denmark has broken the employment record. There has not been such a low unemployment rate since 2008. But unemployment will undoubtedly increase. However, we have a good safety net for those who should become unemployed.

There was praise for the employers for their goodwill so far. But at the same time it was stressed that the coming time will not be easy.

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