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Germany dampens growth expectations

Latest update : 2008-10-16

Germany, the world's N.1 exporter, has slashed its growth forecast for 2009 from 1.2% to 0.2%, its lowest since a 2003 recession. Economy Minister Michael Gloss, however, insisted the figures entailed a "high degree of uncertainty".

Growth of the German economy is set to grind to a near halt next year, the government predicted Thursday, as the global financial meltdown pushes Europe's biggest economy to the brink of recession.

In his latest updated growth forecasts, Economy Minister Michael Glos slashed his 2009 prognosis to just 0.2 percent, a fraction of the previous forecast of 1.2 percent.

That would be the slowest rate of growth seen in Germany since the 2003 recession, when the economy contracted by 0.2 percent.

For the current year, Glos said his ministry was pencilling in gross domestic product (GDP) growth of 1.7 percent, much slower than the 2.5 percent growth recorded in 2007.

Glos insisted that his latest forecasts entailed a "high degree of uncertainty" as it was still too early to predict exactly how the current financial crisis would pan out into the so-called "real" economy.

Nevertheless, the ministry's predictions were notably at the optimistic end of the spectrum.

Earlier this week, leading economic think tanks drew up a worst-case scenario whereby German GDP could actually contract by as much as 0.8 percent in 2009.

According to an article published in the Financial Times Deutschland on Thursday, Chancellor Angela Merkel had insisted that Berlin stand by the 0.2 percent figure, even though both economy minister Glos and finance minister Peer Steinbrueck had been pushing for a figure even closer to zero.

On Wednesday, Merkel had told the parliament that although the German economy was headed for a "difficult period ... I'm convinced that the slowdown will not prove a long-lasting one. Germany is strong."

Glos, too, said he did not want to paint "any horror scenarios."

"These problems are solvable," he said. The fall-out from the current crisis would remain "limited."

"Our autumn projection is based on the assumption that the financial market crisis -- not least as a result of our bail-out package -- will not trigger any further large-scale disruption and the banking system will emerge from the crisis unscathed," Glos said.

At the beginning of the week, the government unveiled a 480-billion-euro (655-billion-dollar) rescue package for Germany's stricken banks.

The plan includes up to 80 billion euros in fresh capital for banks and 400 billion euros in guarantees in order to jumpstart stalled lending between banks.

The package is set to be approved by parliament on Friday.

"There is a chance that the situation, particularly on the financial markets, will calm down more quickly than expected," Glos said.

"At the same time, if there is a further decline in oil prices, current price levels will come down more sharply and that will give an added boost to household consumption," Glos argued.

According to the forecasts, the economic slowdown will also leave its mark on the German labour market, where unemployment has been on a downward trend for more than two years.

Glos predicted that the jobless total will average an annual 3.3 million next year, the same level as this year.

Date created : 2008-10-16

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