German economy could shrink more than 5 percent

24th February 2009, Comments 0 comments

Deutsche Bank had previously predicted a decline in output of no more than 4 percent.

Berlin -- Germany's economy could contract by more than 5 percent this year as the world's largest exporter is battered by the global financial crisis, the country's biggest bank warned Monday.

Deutsche Bank's chief economist Norbert Walter told mass circulation Bild: "The German economy will shrink by 5 percent in 2009 only if we have a real upswing in the summer. It cannot be ruled out that this upswing will not come. Therefore, a worse result than this (5-percent contraction) can no longer be excluded."

Deutsche Bank had previously predicted a decline in output of no more than four percent. Walter called for a global response under the leadership of US President Barack Obama to haul the world out of its economic slump.

Reacting to Walter's comments, a spokesman for German Chancellor Angela Merkel told a regular briefing it was "too early" to revise down the government's own economic estimates for this year.

Berlin believes Europe's biggest economy will shrink by between two and two-and-a-half percent this year, which would be the country's worst recession in six decades.

The spokesman said the government would wait for "hard data from the first quarter" before looking again at its projections at the end of April.

"There is at the moment no reliable evidence to show that these projections need to be revised or corrected," he added.

Official data released this month showed that the German economy contracted by 2.1 percent in the final quarter of 2008, the biggest slump since East and West Germany unified in 1990.

Germany officially entered recession in the third quarter of 2008 after two successive three-month periods of negative growth.

Adding to the doom and gloom, a poll of top economists published Monday by Financial Times Deutschland predicted that 800,000 more people could be out of work by the end of next year.

One analyst said that unemployment could rise to as much as 4.7 million by the end of 2010.

In another example of Germany's weakening labour market, around two-thirds of the 92,000 employees at car giant Volkswagen will have their working hours chopped this week, as new car production continues to slide.

And with the ailing economy sure to play a central role in general elections set for September 27, Merkel's Social Democrat challenger, Foreign Minister Frank-Walter Steinmeier, ramped up criticism of her economic policies.

"The Social Democrats are the ones putting forward new ideas," he said in an interview with the Financial Times published Monday.

Steinmeier also claimed credit for Germany's 50-billion-euro (64-billion-dollar) stimulus plan, which cleared its final parliamentary hurdle on Friday and is designed to drag the economy out of recession.

"The cabinet's decision contained about 80 to 85 percent of what we (Social Democrats) worked on at Christmas," he was quoted as saying.

He called for sweeping changes to Germany's financial regulation, saying: "The turbo-capitalism of the past few years is dead, irrevocably so. We must now create a new order for the future."

At a summit in Berlin on Sunday, leaders from major European countries agreed on the need for greater regulation of financial markets to avoid a repeat of the global economic crisis.

Separately, the German government denied a report Monday in business daily Handelsblatt that the economy ministry was mulling a "bank for the economy" to assist firms struggling to get liquidity from cash-strapped banks.

Richard Carter/AFP/Expatica

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