German Economy To Continue On Path To Recovery

FRANKFURT (AP) -- Germany's economy, Europe's largest, will contract less this year than previously expected according to predictions released Tuesday by Allianz SE, the country's biggest insurer.

Allianz economists forecast the economy will shrink for the year by 4.2 percent, less than the 5 percent to 6 percent decline the government had previously predicted.

The number fits within a range mentioned by Chancellor Angela Merkel in her weekly podcast on Saturday, when she said she expects the country's 2009 GDP to be four to five percent lower.

In its prediction, Allianz said that the country should see an improvement in first quarter 2010 gross domestic product as the economy continues to recover.

"GDP in the first quarter of 2010 is likely to be around 4 percent higher than the year-on-year low of the first quarter 2009," Michael Heise, the chief economist at Allianz said in the company's forecast.

"However, the overall conditions will not allow for any record economic highs in 2010," he said.

Allianz said the effects of government stimulus packages would subside and labor and real estate markets would weaken further, which would have an effect on consumer spending. Capital goods sales and exports would also weaken.

The company said the average annual economic growth forecast for 2010 is 2.7 percent.

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