GERMANY'S LEADING economic institute has predicted that Europe's largest economy will shrink by as much as 2.2 per cent next year.
The forecast by Munich's influential Ifo institute reflects a growing consensus among economists and banks that Germany is heading for its worst recession in its post-war history.
"The signs for the German economy are flashing red for 2009," the institute says in a statement. "The German economy, which benefited in particular from the strong global economic upswing because of its trade orientation, is now being pulled into the maelstrom that the financial crisis has created globally."
Weak demand for German exports would cause the recession to drag on into 2010, the Ifo says.
The slowdown will also push up the federal deficit, it argues, from 1.4 per cent of GDP next year to 2.9 per cent in 2010. That in turn could see the jobless rate spike from three million today to more than four million in a year's time.
The forecast came amid political disagreement in Europe over how best to tackle the recession. Germany is wary of British and French plans to pump further billions into European economies to lessen the recession's effects - and is holding out on actioning until the new year at least.
Yesterday German finance minister Peer Steinbrück mocked Britain's decision to cut VAT, asking Newsweek magazine: "Are you really going to buy a DVD player because it now costs £39.10 instead of £39.90?
"All this will do is raise Britain's debt to a level that will take a whole generation to work off," he said.
Days after US carmakers were bailed out by Washington, Germany's car lobby appealed yesterday for EU liquidity guarantees and cheap credit worth €40 billion to keep the industry alive.
