Create a free account to continue

German Economy Expected To Shrink 6 Percent

Government forecast Wednesday that Europe's biggest economy will shrink by a huge 6 percent this year but return to modest growth in 2010.

BERLIN (AP) -- The German government forecast Wednesday that the country's economy -- Europe's biggest -- will shrink by a huge 6 percent this year but return to modest growth in 2010.

Making its first official forecast for next year, the Economy Ministry said it expects gross domestic product to grow by 0.5 percent as exports recover in a more stable global environment.

Germany, the world's biggest exporter, went into recession in last year's third quarter as the global economic crisis sapped demand for its products.

According to the new forecast, exports will slump by 18.8 percent this year, while domestic demand will decline by a comparatively modest 1.5 percent. It said exports will account for three-quarters of the expected GDP decline in 2009, but will grow by a slim 0.9 percent next year.

Unemployment has yet to spike upward dramatically, but the government forecast significant increases this year and next.

It predicted that the number of Germans out of work will average some 3.7 million this year -- an increase of some 450,000 from 2008 -- before rising more sharply next year to 4.6 million.

Looking further ahead, Economy Minister Karl-Theodor zu Guttenberg predicted GDP growth of a more solid 1.9 percent in 2011, though he stressed that that forecast is uncertain.

The grim overall outlook for 2009 compared with a previous forecast in January that the economy would shrink by 2.25 percent. It puts the government in line with a forecast last week by the country's leading German economic research groups. The think-tanks, however, predicted a further 0.5 percent decline in GDP next year.

This year's forecast contraction would be by far the worst since World War II.

The worst postwar performance to date was a 0.9 percent decline in West Germany's gross domestic product in 1975. The worst since German reunification was a 0.8 percent fall in 1993.

Last year, the economy grew by 1.3 percent.

The government has put together two stimulus packages worth some euro80 billion ($104 billion), featuring programs such as infrastructure spending and a popular bonus that pays people who scrap their old cars money toward the purchase of new vehicles with lower emissions.

Guttenberg underlined officials' opposition to calls from some union officials for even more spending.

Demanding a third stimulus package "achieves the opposite of what is intended: a contribution to uncertainty in this country -- uncertainty among investors, uncertainty among consumers and uncertainty among taxpayers," he said.

Illustrating the problems German business faces, an industry group said Wednesday that orders for machinery and factory equipment were down 35 percent on the year in March.

That was, however, an improvement on the 49 percent slump that the VDMA industry association reported in February.

Other indicators also have offered cause for modest optimism recently. Surveys have shown increases in business and investor confidence, while consumer confidence remains stable, if low.

More in Supply Chain