The COVID-19 pandemic has proven to be challenging globally, causing unprecedented health and economic crisis. The governments are forced to rethink their strategies to navigate through the pandemic with minimal negative impact. Most nations have had some sort of stimulus and fiscal packages (bailout packages) during the pandemic to ensure safety and economic well-being of their citizens.
This article brings to limelight the challenges attributed to Denmark’s socio-economic activities during the pandemic and their impact on the Danish Economy. In addition, the article will further stress the measures implemented by the Danish government to minimize the impact on its citizens due to COVID-19, and how the government intervened in controlling the household consumption, exports and imports, and the labour market.
Consistent GDP in the Recent Decade
The economy of Denmark had robust trade and industry basis devoid of macroeconomic disparities. This stable and steady development of the economy ensured that the Danish Economy’s GDP augmented more than 2.4 per cent in 2019, which exceeded the growth potential, fueled by the components of demands (Domestic and International). The steady measures ensured that Denmark’s economic development came into unforeseen cessation during the first quarter of 2020. The timely efforts by the Danish government to restrict the spread proved that the economy witnessed a slowdown followed by a downturn. The GDP fell during the first quarter, which was further was decreased towards the latter half of 2020.
Denmark was among the first countries to proactively react to the COVID-19. It announced a national lockdown and shut its borders. The move ensured that the COVID-19 spread was contained. Furthermore, the large assemblies were denounced followed by closure of specific sites followed. Transportation followed next with only essential travel being allowed.
The Danish government’s prompt response and efficient handling of the situation was the key to positively dealing with the pandemic situation. In comparison, the Swiss, having comparable territory and an equal proportion of inhabitants as Denmark, had three times more cases and deaths than Denmark.
Impact of the Pandemic on Danes
In the first half of 2020, the Danish economy was hit badly. The COVID-19 relief measures that were implemented were in force till the second quarter of 2020. The economy grew at about 4.5 per cent throughout the year. The projections for 2021 stands clear. The Danish GDP will see growth provided the restriction enforced would be lifted.
Denmark is a country that is dependent on foreign trade mainly via its exports. Being the fifth largest shipping country, any fall in trade would negatively impact the Danish shipping industry. The IMF projects the impact of COVID-19 to increase up to six per cent during 2021, depending on the scenario and the post-pandemic economic recovery characteristics. At first, the impact of COVID-19 on the Danish economy was projected to be lower than the average for the world.
The initial spread of COVID-19 in Denmark was under control, which restored confidence in the Danish Economy, proving that the country could withstand the crisis caused by COVID-19 soundly. This increases the probability of reviving the economy faster. Meanwhile, the Danish Pharma companies further helped reinforce exports which were integral for the economy. This came at a time when there was a worldwide decline across product categories.
Denmark has been a country with low employment rates before the pandemic. The government policies for counteracting the spread of the virus and the restrictions put stress on the labour market. The unemployment rates have seen a rise, and job losses have been registered. The increase in redundancies has differed significantly among various sectors of the economy. Thus, sectors such as tourism, food services, transportation have been impacted negatively. The packages implemented by the government resemble as if they have been successful until now in preserving employment for many workers, thereby eliminating the risk of redundancies. The unemployment rate was about seven per cent in 2020. The post COVID-19 era will witness a gradual decline.
Household Consumption in Denmark has been balanced by a solid transaction in the housing market. Consequently, the trend had been supported to an average level by retail sales, followed by a fall during the summer of 2020. The decline continued till the end of the year.
To balance household consumption, the parliament of Denmark passed a bailout package in June last year. The family units have been entitled to packages that contain two components. The first one focuses on people with social benefits. They are entitled to receive a payment that is free of tax of DKK 1,000. The second package is for wage earners who would have frozen holiday pay earned from the beginning of September 2019 to End-March 2020 paid out. This payment matches up to three weeks’ pay. These benefits could give a severe bust to spending as resembling circa four per cent of the household consumption in the Danish Economy. This would eventually lead to increased spending on two essential criteria. The first one being is dependent on the number of wage earners who make use of the advantage of the frozen holiday pay. The second and most important is whether one would utilize the amount for making purchases. The latter is dependent on the confidence levels during the period and following the pay-out.
A newly passed package would benefit Eight Hundred Thousand homeowners across Denmark. The Danes would be given a money-back of the excess property taxes that value to over DKK 13 Billion based on the newly adopted property assessments. This policy will be in force till the new tax comes into force in 2024. All these measures will offer support to household purchasing power with the availability of higher disposable income for an increase in household spending in the coming decade.
Measures for Revival of Businesses and the Road Ahead Towards Economic Recovery
The lockdown proved to be a challenge for entrepreneurs, and those hit by the restrictions have been entitled to make claims for rebates concerning the overhead costs incurred by the businesses. Additionally, the companies would be able to reschedule tax at source due to the government. The prediction is that public expenditure will take a hit in the coming years due to the ramification of the pandemic. The enhancement in economic activities is expected to happen gradually, which could provide a positive impact aiding the decrease in the debt ratio for the governments. Job losses have seen an increase due to the pandemic, have made the policymakers take measures to restrict the outspread, lot of firms have restricted opportunities to move to COVID expenditures onto costumers. Thus wages would see a stagnated situation in the coming future.
COVID-19 has crippled the world economy’s and thereby, quick-acting to the given situation is vital. An economy like Denmark was swift to work when the pandemic made footfall. Although initially there were a few crutches that were faced, the policies that the policymakers introduced further accelerated by the bailout packages introduced subsequently ensured that the damage was minimized. The pandemic has thrown crucial tests relating to the human side from the health perspective, and the economic defies for making it future proof in economic viability.
Reacting and effectively dealing with challenges in the first place requires an appropriate approach. Nevertheless, what we can learn from the Danes is that given a situation like COVID-19, effectiveness, efficiency, swiftness, and appropriateness was visible. These swift measures ensured that they had the cases under control. Another example is when the Danes reacted swiftly was concerning the vaccines when the Astra-Zeneca vaccine showed a potential link to a severe but rare form of a blood clot. The Danish government responded quickly by stopping the usage of vaccine completely.
These strategic approaches on the firm level and the government would be essential in the ever more polarising on the political basis world. A pandemic situation has shown us that under unpredictable conditions, no one is immune from making mistakes. What matters is how quickly we realize our mistakes and reorganizations and reorient the response to the given crisis is more relevant, and Denmark is an perfect instance of that.
– Tejus Narayan (Student of MA in Applied Economics at Christ University, Bengaluru)
Picture Credits: Wikimedia Commons (Johannes Jansson/norden.or)
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