OSLO/STOCKHOLM/COPENHAGEN — Denmark, Norway and Sweden face some of their worst economic downturns on record this year as the coronavirus pandemic shuts down many businesses, according to a Reuters poll of economists released on Tuesday.
Initially expecting a mild slowdown in 2020, Nordic nations may now see their biggest contraction in a single year since at least the financial crisis of 2009 and possibly since World War II eight decades ago.
With much of the region’s wealth built on trade, major corporations such as truckmaker AB Volvo, shipping giant Maersk and oil company Equinor all warned of a severe impact on business from the pandemic.
Hundreds of thousands of workers have been furloughed or laid off as factories, shops, restaurants and sports and entertainment venues closed or saw a sharp drop in demand.
Gross domestic product for Sweden and Denmark is likely to contract in 2020 by 4.2 percent and 3.3 percent respectively, according to the median predictions, the weakest in 11 years. Norway’s economy is expected to shrink 3.6 percent, the biggest drop since the 1940s.
The Norwegian central bank, which cut interest rates twice last month, and Sweden’s Riksbank, which has pumped money into the economy, could both soon find themselves deploying negative interest rates, Capital Economics recently predicted.
The poll forecast a rapid turnaround in 2021, however, with percentage growth in GDP roughly matching this year’s loss as restrictions are lifted and the effects of fiscal stimulus kick in.
Sweden is now predicted to grow 3.7 percent next year, Norway by 3.4 percent and Denmark by 3.8 percent, although a slower pace of job growth could leave lingering unemployment, the predictions show.
Forecasts revealed unusually large deviations in opinions. Some predicted only a shallow recession this year. Others expected a double-digit plunge in economic output.
For Sweden, forecasts for 2020 ranged from a decline of just 0.7 percent to a depression-like plunge of 12 percent, followed in 2021 by anything from a 1.2 percent rise to a rally of 12 percent.
“First of all, the uncertainty is fundamental. Our forecast is that gradually, in a few weeks, the restrictions will be eased, which means that economic activity is expected to return,” Swedbank Chief Economist Andreas Wallstrom said.
Sweden’s mostly voluntary approach to social distancing has kept much of its service sector afloat, but risks may still be skewed to the downside, he said.
“It is obvious that it has meant a difference that Sweden has remained open. In European countries where the close-down has been harder, service consumption has probably dropped much more,” Wallstrom said.
“But what’s important for the Swedish economy is how the European economy is doing, since we are so export-dependent, so it does not help that much that we have had a more economically beneficial policy in the short term,” he said.
Median predictions in the poll were less severe than those made last week by the International Monetary Fund, which estimated Norway, Sweden and Denmark would see their economies shrink by 6.3 percent to 6.8 percent in 2020.
The outcome of the poll was also far better than some worst cases drawn up by domestic policy makers, such as the Danish central bank’s warning that the slide under certain assumptions could amount to 10 percent this year.
The country’s finance ministry on April 9 said the second quarter of 2020 could become “one of the darkest chapters in Denmark’s economic history” even as it sought to reassure it had the resources to bring the economy back on track.
Polling by Sarmista Sen in Bengaluru.