German Economy To Stagnate In 2010

Germany's economy will shrink by 6.2 percent this year and stagnate in 2010, the country's central bank said Friday.

FRANKFURT (AP) -- Germany's economy will shrink by 6.2 percent this year and stagnate in 2010, the country's central bank said Friday, delivering a forecast more pessimistic than the government's.

The Bundesbank said in its June monthly report that the new projection is "a reflection of the massive economic downturn" late last year and early this year.

Gross domestic product shrank by 2.2 percent in last year's final quarter and by a massive 3.8 percent in this year's first quarter.

"Downward pressure on the German economy is likely to ease during the course of 2009, although it does not look like there will be a significant upturn in the near future," the Bundesbank said in a summary of its monthly report.

"With the gradual easing of tensions in the international financial markets, improved expectations, and with the support of extensive monetary and fiscal stimuli, the German economy could regain some ground in the third quarter," it added.

The government forecast in late April that the country's economy, Europe's biggest, would contract by a post-World War II record of 6 percent this year but would return to growth -- albeit feeble -- of 0.5 percent next year.

However, the Bundesbank, the national central bank, said it expects zero growth in 2010.

"As things stand, economic activity is expected to remain at a subdued level in 2010, despite picking up slightly in the course of the year," the bank's report said.

Germany's economy grew 1.3 percent in 2008, about half as much as the previous year. The country went into recession in last year's third quarter.

The Bundesbank also said Friday it expected unemployment to rise to an average of about 4.4 million in 2010, or around 10.5 percent, somewhat less than the government's prediction of 4.6 million.

The bank expects an average this year of about 3.5 million jobless, or 8.4 percent -- which is close to the current level.

"More job cuts and a faster rise in unemployment may be expected in the coming quarters," the Bundesbank said.

The bank said the labor market had thus far only shown moderate reaction to the economic decline because businesses had worked quickly to adjust production to falling demand.

German companies often take measures like reducing worker hours to ensure more jobs are kept, even when sales decline.

The euro was lower against the dollar following the Bundesbank's report. It was down to $1.4162 after trading above $1.42 earlier Friday.

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