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Denmark expects biggest economic contraction since WW2

FILE PHOTO: A view of the Nyhavn district in Copenhagen

COPENHAGEN (Reuters) - Denmark's economy is facing its biggest contraction since World War Two this year as a result of global coronavirus lockdown measures, the finance ministry said on Tuesday.

"It is serious. The corona crisis is likely to affect the Danish economy for several years going forward. But we have paved the road for a way out of the crisis, and we have already taken the first important steps," Finance Minister Nicolai Wammen said in a statement.

In April, Wammen said Denmark was facing one of the "darkest chapters" in its history as the government predicted a contraction this year of between 3% to 6%.

The finance ministry now expects the economy to shrink by 5.3% this year, down from a pre-coronavirus crisis forecast of 1.5% growth.

In comparison, the euro zone economy is expected to contract 7.5% in 2020, according to a Reuters poll of economists.

During the financial crisis in 2009, the Danish economy shrunk by 4.9%.

Growth next year is expected to be around 4%, up from a December forecast of 1.4%.

Denmark has injected more than 300 billion crowns into the economy in aid packages including tax and VAT payment extensions and direct subsidies.

"The temporary aid packages need to be phased out and replaced with wise investments and initiatives to kick-start the economic activity," Wammen said.

On Monday, the finance ministry tripled its estimated domestic financing need for 2020, as it now aims to borrow 294 billion crowns, mainly to fund the increase in fiscal spending.

Denmark was among the first countries to shut down in March to curb the coronavirus epidemic and has been one of the first to reopen after successfully stifling the virus outbreak.

(Reporting by Nikolaj Skydsgaard and Stine Jacobsen; Editing by Alison Williams and Angus MacSwan)