Germany Reduces 2009 GDP Growth Forecast

Citing global financial ‘uncertainty’ which threatens to push Europe's largest economy into a recession, Germany slashed a full percentage point off its economic growth forecast for 2009.

BERLIN (AP) -- The German government on Thursday slashed a full percentage point off its economic growth forecast for 2009, to 0.2 percent from 1.2 percent, citing the "uncertainty" on global financial markets which threatens to push Europe's largest economy into a recession.

"With the current prevailing uncertainty about the real economic effects of the financial markets crisis, all current projections have a certain degree of uncertainty," Economy Minister Michael Glos said.

The prediction for 2008 GDP growth remained unchanged at 1.7 percent, Glos said.

"For 2008 the federal government can be expected to meet its spring projection, notwithstanding the far-reaching federal crisis," Glos said.

"In 2009, a very low growth is still possibly reachable. The German economy at the moment is being tested with a heavy burden. Only through comprehensive efforts and contributions from everyone will we jointly pass this test."

German Chancellor Angela Merkel's Cabinet on Monday passed a financial rescue package, worth up to 500 billion euros ($671 billion) in an effort to shore up confidence in markets and the banking sector.

The German package foresees up to 400 billion euros ($536.7 billion) in lending guarantees for banks. Both houses of parliament are expected to vote on it Friday.

Glos said it was assumed in the GDP forecast that the rescue package would mean that there would be "no further large downturns" on financial markets, and that the banking system will emerge from the crisis widely undamaged.

Germany is the world's largest exporter but Glos told reporters that the recent euro strength was hurting foreign trade. The euro hit an all-time high against the U.S. dollar in 2008 before retreating slightly in recent weeks.

"Foreign trade as a motor of growth will drop a bit," Glos said.

The announcement followed a report earlier in the day from the country's influential DIHK chamber of commerce, which predicted a slightly more optimistic 0.5 percent growth for 2009.

DIHK's forecast is based on a survey of some 25,000 businesses.

"No question, the expectations of the businesses are clearly dampened," said DIHK head Martin Wansleben. "They are far, however, from giving reason to panic."

The prediction comes after a group of leading German economic think tanks said Tuesday that Europe's largest economy is on the "brink of a recession" as they scaled back their 2009 growth prognosis to 0.2 percent.

The four institutes held to their previous prognosis of 1.8 percent growth for 2008 and named global financial markets' reaction to recent rescue packages "the largest questionable factor" in the prognosis.

Germany already has seen growth drop from 3 percent in 2006 to 2.5 in 2007.

More in Supply Chain