Berlin forecasts worst recession in post-war history

The German government forecast a 2.25% contraction in the economy this year as the global slowdown dents demand for German exports. Chancellor Angela Merkel's cabinet is working on a record €50bn package to boost public spending.


AFP - Berlin forecast on Wednesday that Germany will suffer its deepest post-war recession this year, as Chancellor Angela Merkel's cabinet chewed over a historic rescue package aimed at easing the pain.

Germany's economy, which accounts for about a third of eurozone output, will contract by around 2.25 percent in 2009, the government said, as the sharp global slowdown hits demand for the country's all-important exports.

"For this economic downturn that we are unfortunately having to predict is without precedent in the postwar period, it is the biggest slump in Germany's recent history," Economy Minister Michael Glos told a news conference.

"The German economy is facing this year the greatest challenges since unification (in 1990). Germany is integrated into the global economy like hardly any other industrialised country."

The new forecast came as Merkel's cabinet discussed on Wednesday Berlin's latest effort to help the world's biggest exporter avoid the worst: a 50-billion-euro (65-billion-dollar) stimulus effort.

The package, the biggest in modern German history, includes a huge increase in spending on roads, railways, hospitals and schools. Other elements include cuts in tax and social security contributions, as well as incentives for consumers to buy new "greener" cars to boost Germany's ailing auto sector.

Germany entered a recession in the third quarter of 2008 with two successive three-month periods of shrinking economic output.

Preliminary official figures last week showed that the slowdown accelerated sharply at the end of the year, contracting by between 1.5 and two percent -- the sharpest fall in two decades.

Merkel also plans to set up a 100-billion-euro fund to help out firms struggling to secure sufficient credit -- or at least loans without painful interest rates.

Hard-up banks are still proving reluctant to dole out cash despite Berlin's 480-billion-euro banking package rushed through last year, firms have complained.

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