German economy to contract 6 per cent in 2009

The German authorities presented the gloomiest ever picture of the German economy since World War II, by forecasting a huge 6 per cent contraction in 2009, against its earlier estimate of 2.25 per cent three months ago.

Finance minister Peer Steinbrück said in Berlin on Wednesday that Germany, the world's biggest exporter, would suffer a severe contraction this year from ''the worst recession since the Second World War.''

Europe's largest economy is heavily dependent on its exports which plunged sharply due to fall in demand for its products following the global economic crisis. Exports of machinery, automobiles, chemicals, metals, textiles etc. which account for over 40 per cent of the country's gross domestic product (GDP) are expected to slump by almost 19 per cent this year.

Steinbrück was hopeful that there could be a modest recovery of 0.5 per cent in 2010 although IMF and other German economic researchers are not so optimistic and expect a contraction of 0.5-1.0 per cent in next year also.

International Monetary Fund (IMF) update last week predicted 5.6 per cent decline for the German economy this year, worse than for any other developed country barring Japan, for which the forecast was 6.2 per cent contraction.

Last year Germany registered a GDP growth of 1.3 per cent and exports grew 2.7 per cent.

The biggest post-war decline in GDP was witnessed in 1975, when the economy recorded 0.9 per cent shrinkage and further in 1993, after the reunification of the country, the economy contracted 0.8 per cent.

Steinbrück believed that Germany is still in a better position compared to other European countries because of the government's stimulus measures and cautioned that some other countries in the Eurozone may not be able to stay competitive as the global slump continued. 

Although Steinbrück did not name any specific country, analysts consider the economic situation of Italy and Greece to be the most vulnerable in the present day crisis.
He said Germany was in the process of removing toxic assets from affected banks.

German chancellor Angela Merkel announced recently two stimulus packages worth €81 billion ($108 billion) to revive the struggling economy, focusing on infrastructure spending and auto sector.

Germany's economics minister Karl-Theodor zu Gutteberg said: "The economic blow that we're expecting this year is first and foremost, a result of the massive global economic downturn and the huge drop-off in exports connected to this."

"We see a good chance of stabilisation or even a slight recovery of the world economy during the course of next year at the latest." "A global economic revival will be helpful particularly for us, just as the decline hit us particularly hard." Gutteberg added.

Gutteberg foresees a more stable 1.9 per cent GDP growth in 2011 though he told it is uncertain.

Industry observers reported a 35 per cent drop in orders for machinery and equipment in March, though the figure was worse for February, at 49 per cent. Many leading companies reported slump in profits or registered heavy losses in the first quarter.

The growing number of unemployed in the country poses the biggest challenge before the government. The average figure for 2009 is expected to be 3.72 million, about 14 per cent higher than 2008, which is estimated to grow to 4.62 million in 2010, a whopping 24 per cent increase.

Average inflation anticipated for 2009 is 0.3 per cent and 0.7 per cent for the next year.

The growth predictions form the basis for the government's forthcoming tax revenue updates and the budget for 2010.

The general elections in Germany are due in September.