Analysts predict German economy will shrink 7.5%

 

EUROPE’S LARGEST economy will contract by at least 4.5 per cent in 2009, according to leaked official figures, with some analysts predicting a worst-case scenario of a 7.5 per cent slide.

The continued collapse of Germany’s all-important export market is the main reason for what will be the worst economic year on record in the country’s post-war history – with experts warning the worst is yet to come.

“The annual projection of the government cannot be maintained. The 2.25 per cent won’t stay in place,” admitted finance minister Peer Steinbrück yesterday.

The government will present its new forecasts on April 29th, but analysts are already bracing themselves for the worst. Earlier this week, Commerzbank analyst Jörg Krämer said that a contraction of 7 per cent could no longer be ruled out. “That results, above all, from data in the last published order and production figures. Data for January are disastrous,” said Mr Krämer. “The figures have collapsed in a way unprecedented in German post-war history.”

Adding to the gloom, German business confidence has fallen to its lowest level in 26 years.

“In the opinion of survey participants, an economic turning point has not yet been reached,” said Prof Hans-Werner Sinn, head of the Munich-based Ifo economic institute.

The index reading of 82.1, the lowest level since November 1982, arose from the result of monthly surveys with 7,000 managers about their current and future expectations.

The results yesterday increased speculation among analysts that the European Central Bank will cut rates again next week in a bid to encourage growth in the euro zone. The Ifo expects a 50 basis-point cut at the April 2nd meeting, although it is calling for more.

The economic outlook will be electoral poison for Germany’s political parties as they face a general election in September.

Leading newspapers have speculated that the jobless rate, always a barometer of economic strength and voter satisfaction, is likely to end the year above the four million mark – a dramatic rise from the 3.3 million mark it hit last year.

Tax revenue is likely to drop by up to €25 billion, officials told the Süddeutsche Zeitungnewspaper, pushing new borrowing up to €70 billion – a new record.

Political leaders cannot promise even a glimpse of an upswing on the horizon, according to Jörg Krämer. “In the coming year, there will be no upswing worth the name.”