Berlin: A panel of German economic experts has presented a bleak assessment of the state of the German economy in its 550-page report stating that the country may expect zero growth for 2009. The panel's report says that inspite of a good start in the first quarter of 2009, the country now stood at the edge of a recession.

"The shock waves emanating from the financial crisis have fully hit the German economy," wrote the experts at the beginning of the report. "After a surprisingly good start in the first quarter of 2008, the situation has become so gloomy that Germany is on the edge of recession."

Submitted on Wednesday by the "five wise men," as they were colloquially known, until a woman joined the panel, the German Council of Economic Experts put the blame for the economic downturn squarely on financial markets inside and outside of Germany.

In their report the panel said they saw no chance of the German economy escaping the negative pull of the global financial crisis. The European powerhouse has already experienced negative growth in the second quarter of 2008, and if data to be released on Thursday points to a shrinking in the third quarter as well, then Germany will officially be in recession.

The report also warned that the new year won't bring any immediate relief. "Gross domestic product may have increased by 1.7 percent in the ongoing year, but 2009 will bring stagnation in economic output," the Council concluded.

Recommendations
Though generally positive about the government's attempts to avert financial disaster in its bailout of financial institutions it has recommended that the government remains focused on restructuring financial institutions and not bail-outs. "It would be wrong to keep the greatest possible number of banks alive at any cost," the report recommended.

In this regard it pointed to the Swedish government's response to Sweden's banking crisis in the 1990s as a likely model.

It said the goal ought to be to use restructuring to restore "an efficient and competitive" banking landscape in Germany. "That presupposes that the state backs off after a successful process of stabilization and restructuring, and concentrates on its core tasks," it concluded.

On the issue of economic stimulus, the panel has recommended that the government no longer stress balancing the budget. Instead, it said Berlin should attempt stimulating internal consumer demand and pump money into public-works projects.

"There are good arguments for expanding net public investments next year and financing them with a higher deficit," the report asserted. "Particularly suitable are already approved public projects in transportation infrastructure, which have been delayed due to lack of financing."

The report also recommended that the European Central Bank should lower interest rates.

Falling oil prices may help boost the German economy in the latter stages of 2009, it said, but not enough to get growth back on the rails again.