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Denmark plans $1.5 billion coronavirus 'war chest' in fiscal boost

COPENHAGEN (Reuters) - The Danish government on Monday proposed significantly boosting state spending next year, including creating a $1.5 billion “war chest” to help its coronavirus-hit economy and secure access to a future vaccine.

The Nordic country was among the first in Europe to shut down in March and quickly announced a string of initiatives to stimulate its economy, which the finance ministry expects to shrink 4.5% this year, the biggest contraction since 2008.

The government said it was targeting a budget deficit of 0.5% of GDP for next year, increasing spending by 21 billion Danish crowns ($3.4 billion) from the previous budget forecast.

In its most recent economic forecast in May, the ministry had foreseen a 0.4% budget surplus in 2021, after an expected 0.4% deficit this year.

“We are planning a significant easing of fiscal policy,” Finance Minister Nicolai Wammen told a news briefing.

The government proposed allocating 9.2 billion Danish crowns to the “war chest”, to be spent on new measures to support struggling companies and on the healthcare system, including securing access to a COVID-19 vaccine when one is ready.

“The downturn in Denmark’s economy has not been as bad as in many other countries,” Wammen said. However, the outlook for Denmark’s small export-driven economy was still uncertain due to downturns in its main export destinations, he added.

Denmark’s economy shrank 8.2% year-on-year in the second quarter, official data showed on Monday.

The finance ministry on Sunday raised its financing needs for this year by 70 billion Danish crowns to 248 billion.

Because of the coronavirus crisis, Denmark has extended several tax payment deadlines and will bring forward to October the payout of so-called holiday allowances worth some 60 billion crowns to help stimulate consumption.

Denmark’s unemployment rate stood at 4.8% in July, data showed on Monday, down from over 5% in the previous three months. ($1 = 6.2553 Danish crowns)

Reporting by Jacob Gronholt-Pedersen and Tim Barsoe; Editing by Kevin Liffey