Denmark: Government approves massive spending package to support economy
March 20, 2020
In recent days, the government has approved fiscal stimulus measures worth approximately DKK 286.7 billion (USD 38.4 billion) to combat the effects of the coronavirus (Covid-19) pandemic and the containment measures imposed to slow its transmission. Representing roughly 12.4% of GDP, the package comprises of government subsidies, loan guarantees and other measures to enhance liquidity. The government hopes to sustain jobs that are at risk of being lost and facilitate lending to cash-strapped businesses. For its part, the National Bank of Denmark has also taken measures to ensure currency swap agreements with the ECB and Fed to alleviate pressure from the DKK.
The spending measures are mainly comprised of mitigating income losses to businesses and households. The government has approved roughly DKK 100.7 billion (USD 13.4 billion) worth of compensation and state-backed loans for businesses. Moreover, the government is looking to ensure households are well-equipped to weather the storm, by offering DKK 14 billion (USD 1.9 billion) in the form of unemployment benefits and wage compensation—up to 75% of wage costs for businesses that have to lay off 30% of their workers, and also for self-employed and freelancing workers.
Nonetheless, the economy is expected to suffer in the coming quarters due to quarantine measures weighing on economic activity and weaker economic prospects in key trading partners. The government’s stimulus measures will likely help cushion the blow to the economy and ensure a solid rebound once the economy returns to normal operating conditions. The arrangement to compensate workers that will be temporarily laid-off should allow businesses to keep their ties with employees and ensure a smooth transition back to work. Moreover, the compensation to businesses for their losses and the facilitation of loans will allow most enterprises to keep afloat until the pressures of Covid-19 abate.
Author: Steven Burke, Economist