Danish economy faces 'darkest chapter' as pandemic hits growth, finance minister says

By Jacob Gronholt-Pedersen and Nikolaj Skydsgaard

COPENHAGEN (Reuters) - Denmark's economy could shrink by up to 6% this year and the country faces the "darkest chapter in its economic history" due to damage caused by the coronavirus pandemic, Finance Minister Nicolai Wammen said on Thursday.

The government proposes offering loans to small and medium size businesses worth up to 35 billion Danish crowns ($5.10 billion) by refunding VAT payments made in March.

The extra liquidity would come on top of already announced economic support measures to businesses worth 287 billion crowns, including direct aid packages that will cost the state more than 60 billion crowns.

"We are facing a hard hit to the Danish economy," Wammen said at a news conference. "The second quarter of this year is likely to be one of the darkest chapters in Denmark's economic history."

He said the Danish economy could shrink by between 3% and 6% this year, down from 2.4% growth last year.

Last week the Danish central bank forecast a contraction of between 3% and 10% this year, depending on the depth and length of the crisis, with its main scenario being a 5% contraction.

The minister said the economic recovery in Denmark would need "long-term" and "wise" government investments, and said this was a unique opportunity to make it a 'green' recovery.

Denmark, the cradle of wind power, is viewed as a pioneer with regards to climate change in particular its ambitious target of a 70% greenhouse gas reduction by 2030.

"We face a climate challenge, which hasn't disappeared because the coronavirus has hit us," Wammen said.

"As we lift our climate ambitions, we also support Danish jobs and business. We need to seize that opportunity," he said, adding renovation of social housing and improvement of infrastructure as possible other investments.

Denmark, which was one of the first European countries to announce a lockdown, has reported 218 coronavirus-related deaths, but has seen the number of hospitalizations of corona patients fall over the past week.

On Monday, Prime Minister Mette Frederiksen said day care centres and schools will begin reopening next week as the first step in a gradual relaxation of the lockdown.

(Reporting by Jacob Gronholt-Pedersen and Nikolaj Skydsgaard; Editing by David Holmes and Raissa Kasolowsky)