An activist dressed up as German Chancellor Angela Merkel throws fake Euro currency notes into a fire in Berlin
Germany forecasts worst recession since World War II
56 minutes ago
BERLIN (AFP) — Germany said on Wednesday it would suffer its deepest recession since World War II this year, as Chancellor Angela Merkel's government 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 about 2.25 percent in 2009, the government said, as the sharp global slowdown hits demand for the country's all-important exports.
And by the end of the year there will be another half a million Germans out of work -- something certain to add spice to campaigning ahead of general elections on September 27 when Merkel hopes to secure a second term.
"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.
Glos said that this programmes, together with similar efforts being made around the world, would begin to help the German economy in the second half of 2009.
Germany entered a recession in the third quarter of 2008 with two three-month periods of shrinking economic output in a row.
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 in the fourth quarter -- the sharpest fall in two decades.
Unemployment hit three million in December, rising for the first time after almost three years of unbroken decline. Data have shown industrial orders and output falling off a cliff.
In recent years German exports have been its source of strength, but the global downturn has turned them into an Achilles' heel -- Glos forecast they would slump 8.9 percent this year.
Germany "is suffering more than other countries," said Henrik Uterwedde from the Franco-German Institute (DFI). "The real motor of the economy has always been exports while domestic demand has tended to stagnate."
Glos also forecast that the jobless rate would climb to an average of 8.4 percent over 2009 from 7.8 percent in 2008.
The European Commission forecast on Monday that the 27-nation EU economy would shrink 1.8 percent this year, but that it would grow 0.5 percent in 2010. Glos declined to give a forecast for Germany for next year.
Within the 16-nation eurozone, only Ireland was forecast to suffer a steeper slowdown, and in the EU, only Britain, Ireland, Estonia and Lithuania are seen experiencing a sharper drop in output.
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.
Commerzbank, the second largest lender, is set to be partially nationalised with Berlin taking a 25 percent plus one share stake in return for 10 billion euro in desperately needed fresh capital.
Stricken property lender Hypo Real Estate, the country's biggest casualty, has so far been given 42 billion euros in state guarantees to keep it afloat and the bank may see the state forced to come on board as part owner.
There are also persistent rumours that Berlin will set up a "bad bank" to take on lenders' toxic debts.