Europe's largest economy drops deeper into recession

The German economy shrunk by 1.5-2.0% in the last quarter of 2008, according to an estimate by the national statistics office. The news comes a day after the government unveiled a second €50bn economic stimulus package.


AFP - The German economy shrank by 1.5-2.0 percent in the fourth quarter, official data showed Wednesday, as the financial crisis and strong euro plunged Europe's powerhouse deeper into recession.

The contraction, which compared with the third quarter, was in line with suggestions from officials in recent weeks but underlined the problems facing Europe's biggest economy and the world's leading exporter.

On Tuesday, Chancellor Angela Merkel unveiled a second economic stimulus package of 50 billion euros (66 billion dollars), the largest since 1945.

The German economy contracted in the second and third quarters.

Over 2008 as a whole, the economy grew by 1.3 percent, provisional figures released by the Destatis statistics office showed.

Commenting on the fourth quarter, Destatis director Norbert Raeth told a press conference in Frankfurt that it was "extremely difficult" to give an estimate because of the "current instability of economic conditions."

He stressed that the figures could be revised in mid-February, when Destatis is to provide more precise data on fourth quarter economic activity.

In 2007, the biggest European economy had grown by 2.5 percent, and economists polled by Dow Jones Newswires had expected an increase of 1.4 percent last year.

The government's official 2008 forecast was for growth of 1.7 percent.

Germany has been hit hard by the global economic slowdown and the euro's rise in value against the dollar, which have curbed demand for its automobiles, household appliances and machine tools.

When the 2008 data was adjusted for the number of working days each year, the annual growth figure fell to 1.0 percent.

Exports increased by 3.9 percent in 2008, nearly half the level a year earlier, while imports rose by 5.2 percent, and private consumption was unchanged, Destatis said.

Berlin still officially expects the economy to grow by 0.2 percent this year but Finance Minister Peer Steinbrueck has already warned it could shrink by up to 1.0 percent.

A finance ministry source has said the economy could contract by up to 3.0 percent in 2009, which would mark the biggest decline since World War II.

Germany also posted a public deficit equivalent to 0.1 percent of gross domestic product (GDP) last year, improving slightly on the the 2007 figure of 0.2 percent of GDP.

But Steinbrueck was quoted by the Financial Times Deutschland on Wednesday as saying that the German public deficit would soar to more than four percent of GDP in 2010, breaching European Union rules.

"We will be well above four percent in 2010," Steinbrueck said in an interview with the Financial Times Deutschland.

Under the EU's Stability and Growth Pact, eurozone members are bound to maintain public deficits below 3.0 percent of GDP

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