Economic impact of COVID-19

It is difficult to distinguish the impact of the pandemic from the impact of infection control measures, self-regulation among households, and disruptions to foreign trade. This report attempts to shed light on the question by comparing the macroeconomic outcomes in Norway, Sweden and Denmark. The three Scandinavian countries chose different infection control strategies in 2020. While Norway and Denmark quickly introduced strict measures, Sweden chose a more cautious line.

The pandemic resulted in significant costs in the form of lost value added in 2020. Lost value added, measured as a decline in GDP, however, is not a complete measure of the welfare loss in the pandemic. First, GDP is limited to losses of current value added, and not losses in later periods. Future losses can be significant, e.g. if many drop out of the labor market. Secondly, GDP is limited to losses related to economic activity. It does not say anything about costs in the form of lost health or death for those who become ill from Covid-19, nor does it say anything about similar health effects for others in society or the reduction in quality of life that infection control measures can provide. Lost value added nevertheless captures important dimensions of the economic costs of Covid-19, and can be a starting point for a more comprehensive assessment.

In this report, we consider the macroeconomic outturns through 2020. This is not a complete picture of the impact of Covid-19, since the pandemic is still not over. Nevertheless, we believe that the data available up to the end of 2020 give sufficient ground for drawing preliminary conclusions about the consequences of different strategies, in the form of a decline in economic activity.

The figures for 2020 indicate that stricter measures in Denmark and Norway had economic consequences, in the form of further losses of value added, especially in the service industries. Compared with the decline triggered by the pandemic, however, the consequences of stricter measures were limited. The fall in GDP in 2020 was 0.3 per cent deeper in Sweden than in mainland Norway, and 0.5 per cent deeper in Denmark than in Sweden. In the 4th quarter of 2020, gross product in Denmark was 2.6 per cent lower than in the 4th quarter of 2019, while the decline was 2.2 per cent in Sweden and only 1.3 per cent in Norway.

Compared with forecasts given before the pandemic broke out, GDP was between 4 and 5 per cent lower, where the result in Sweden was about ¼ - ¾ per cent better than in Denmark and mainland Norway. The difference may also be due to factors other than different arrangements for infection control measures, but the results indicate that the decline triggered by the pandemic itself was significantly greater than the further decline that more stringent infection control measures may have led to.

The report submitted to the Corona Commission has not been updated with revised figures from the Danish national accounts, which were published on 31 March 2021. The revision does not change the conclusions in this report.