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Germany expects worst economic growth since WWII

(Agencies)
Updated: 2009-01-21 23:34

BERLIN -- The German government forecast Wednesday that the country's economy will shrink by 2.25 percent this year, which would easily be its worst performance since World War II as exports decline sharply amid the global downturn.

German chancellor Angela Merkel, right, talks to German Labor Minister Olaf Scholz, left, at the beginning of a meeting of the cabinet at the chancellery in Berlin, Germany, Wednesday, Jan. 21, 2009. The German government forecast Wednesday that the country's economy will shrink by 2.25 percent this year. [Agencies]

The new forecast for Europe's biggest economy was down drastically from the government's previous prediction, made in mid-October, of 0.2 percent growth.

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"There is no precedent in postwar history for this economic decline that we unfortunately have to forecast," Economy Minister Michael Glos told reporters.

He predicted that exports, a key driver of German growth over recent years, would slump by 8.9 percent in 2009.

As the world's leading exporter, "we have profited greatly from upswings in the world economy and obviously, when things go the other way, we are an economy that is particularly affected," Glos said.

The worst postwar annual economic performance to date was a 0.9 percent decline in West Germany's gross domestic product in 1975. The worst since German reunification was a 0.8 percent fall in 1993.

The economy went into reverse in last year's second quarter and slipped into recession in the third quarter.

Glos said Germany's central bank, the Bundesbank, believes the economy shrank about 1.75 percent in last year's final quarter compared with the previous three months as the global financial crisis intensified.

Germany's Federal Statistical Office has said that the economy grew by 1.3 percent last year, only about half the previous year's rate, weighed by rapidly weakening exports.

Glos gave no forecast for Germany's economic performance in 2010 and said the government would produce one in April at the earliest. However, he said he expected the world economy to be growing again by then.

In an effort to limit the impact of the global crisis on Germany, Chancellor Angela Merkel's government last week drew up a new euro50 billion (US$65 billion) stimulus package.

The plan includes investments in infrastructure, tax relief, reductions in health care contributions and bonuses for families with children. It adds to an earlier plan worth euro23 billion, which was criticized at home and abroad as too cautious.

Thursday's forecast showed Germany's unemployment rate growing to an average 8.4 percent this year from 7.8 percent in 2008. It forecast that domestic demand will decrease by a modest 0.1 percent.