The Coronavirus Crisis: Nordics exposed to economic fallout from coronavirus

• The Nordic economies will be affected, but less severely than elsewhere in Europe – in the magnitude of 0.2-0.3 percentage points lower GDP growth in 2020 in the main scenario.

• The Danish government is waiting to see what happens, and we do not expect a rate cut – on the contrary, a small hike looks likely.

• Riksbank to cut in April, Swedish government looking into short-term measures.

• The economic effects of the virus mean a Norwegian rate hike is no longer likely, but the bar is high for a cut.

• Finland is preparing but sees limited risk so far.

We expect the outbreak of the coronavirus, and the countermeasures against it, to have a significant impact on economic growth globally, including Europe, in the first half of 2020 (see The Coronavirus Crisis: U-shaped rather than L-shaped global recovery, 4 March 2020). The Nordic countries will also be affected through the same mechanisms: disruption of inputs to production especially from China, possible disruption to domestic production as employees stay away, and disruption to demand as consumers avoid stores, restaurants, travel, etc. However, there is reason to believe that the impact in the Nordics will be smaller than in Europe as a whole. The Nordics have relatively less direct exposure to China, and consumer services such as hotels, restaurants, recreation and culture are relatively smaller parts of the economy, although of course still significant. Among the Nordics, only Denmark has a surplus in tourism spending (foreign residents spend more in Denmark than Danish residents spend abroad), and even for Denmark it is a small surplus. The spread of the virus has so far been modest in the Nordics, although it is now accelerating in Sweden and Norway, where a number of ski tourists were infected in Italy. There is in general a high level of trust in the competence of the authorities. If the economic impact escalates, the Nordics have policy options to counter it, as public finances are healthy and, in the case of Sweden and Norway, there is room to cut interest rates if deemed necessary.

Denmark: wait and see

Among the Nordic economies, Denmark has the largest direct exposure to trade in goods with China, and Danish production is quite reliant on imports from other Asian countries. Danish exports of shipping services amounted to 11.2% of GDP in 2019. Transport companies A.P. Møller-Mærsk and DSV Panalpina have warned that the situation has created uncertainty for their earnings this year. However, any decline in shipping exports is likely to be almost completely matched by a similar decline in imports, and hence would have a limited impact on Danish GDP. While Danish production is not especially reliant on inputs from China, OECD data shows significant reliance on inputs from South Korea and Japan, where production could also be disrupted. However, these numbers are very much driven by imports of ships, and delays in ship deliveries are not likely to have a significant impact on Denmark.

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