By Nikolaj Skydsgaard
COPENHAGEN (Reuters) – Denmark’s central bank governor on Wednesday praised the government’s handling of the COVID-19 crisis even as his institution forecast subdued economic growth this year following a first quarter clipped by lockdown restrictions.
“All in all, it’s more than approved,” Lars Rohde said of government policy-making during the pandemic, also commending lawmakers for steering Denmark through a year of unknowns.
“It’s been immensely difficult.”
The economy shrank 3.3% in 2020, the worst since the 2008 global financial crisis, but the drop was smaller than feared as consumer spending and investments buoyed GDP.
Rohde said public finances had been well-prepared for a crisis.
“There’s been room for various aid packages, and despite all those, including extension of tax payments, we have very low public debt in an international context,” he told journalists after the bank released its economic forecast.
Growth was hampered by very low activity in the first three months of 2021, the central bank said, but there was a basis for rapid recovery thanks to vaccinations and pent-up demand.
‘STILL GREAT UNCERTAINTY’
“An accumulated demand can quickly be converted into increased consumption once restrictions and fear of infection hamper the economy to a lesser extent,” the bank said.
It forecast growth of 1.4% this year, significantly lower than a December estimate of 2.9% growth.
“There’s still great uncertainty about the economic development, which may be significantly stronger or weaker than in our projection,” Rohde said.
A larger part of the first quarter had been affected by lockdown than last year, which would cause the economy to shrink by 3.5%-4% in that period, the bank estimated.
Sydbank analyst Mathias Dollerup Sproegel said in a note that the central bank was being too pessimistic. “When the restrictions are lifted, a strong economic recovery can potentially happen,” Sproegel said.
Sydbank expects 2.7% growth this year.
The central bank forecast the economy to grow 4.5% in 2022 and 2.2% in 2023.
(Reporting by Nikolaj Skydsgaard and Jacob Gronholt-Pedersen; Editing by John Stonestreet and Andrew Cawthorne)
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