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Germany's Recession Blues

Berlin Predicts Sharp GDP Contraction for 2009

On Wednesday, the German government corroborated what leading economists had predicted last week -- that 2009 would see the German economy contract by a massive 6 percent. But the Economics Ministry does see a rosier 2010 than the think tanks do.

The German government on Wednesday predicted a 6 percent contraction of the nation's gross domestic product for all of 2009, which would be the largest shrinkage since World War II and a massive revision from its January forecast of 2.25 percent.

Still, the announcement wasn't exactly a surprise, since the nation's leading economic institutes had predicted last week that Germany's GDP would shrink by around 5 percent to 6 percent.

The government's Growth Forecast Review presented Wednesday by Economics Minister Karl-Theodor zu Guttenberg also looks forward to an end to the recession sometime in 2010. The government predicts a small increase in growth next year of 0.5 percent.

However, this number is more optimistic than the assessments being made by independent institutes, which gave a consensus forecast last week that the GDP would contract in 2010 by 0.5 percent.

The main reason for Wednesday's dramatic revision of the 2009 forecast from January is this year's 23 percent decline in exports. The German economy relies on high-value exports, which have fallen off sharply since January.

The country's economy has never contracted by more than 1 percent in a single year since World War II, and a contraction of 6 percent is the worst 2009 forecast for all advanced economies except Japan's, which is predicted to shrink by 6.2 percent.

msm -- with wire reports