Germany slashes growth forecast
The German economy is expected to slump by a massive six percent this year in one of the worst recessions in the developed world, the German government announced Wednesday.Berlin -- Germany slashed its growth forecast Wednesday, foreseeing one of the worst recessions in the developed world with a crunching six-percent slump this year, but raised hopes of a recovery in 2010.
In its new projections, the government of Europe's biggest economy said that growth was set to creep back into the black next year, with output likely to rise by 0.5 percent.
Berlin is more optimistic for next year than the International Monetary Fund which recently said the country's recession would stretch into 2010, with output contracting by one percent.
The latest estimates are a sharp downward revision from the government's projections published last year, which foresaw a contraction of 2.25 percent.
If the six-percent slump is confirmed, only Japan among major economies would suffer a worse recession, with a predicted 6.2-percent decline this year according to the IMF's latest projections.
"The economic decline that we are expecting this year is predominantly the consequence of the massive global slump and the related massive decline in our exports," said Economy Minister Karl-Theodor zu Guttenberg in a statement.
Germany -- the world's top exporter -- has seen demand for its goods dry up as customers around the globe suffer from the financial crisis.
Recent data showed German exports plunged by 23.1 percent in February.
However, despite the dire figures, zu Guttenberg rejected the idea that Berlin should implement a third stimulus package to inject some life into the economy, arguing it would be "counterproductive."
Germany has already put into place two stimulus packages worth around 81 billion euros (106 billion dollars) but was criticised both at home and abroad for being both too slow to act and too conservative.
These first two packages are "already working," zu Guttenberg said and a third package would serve only to create more "uncertainty amongst investors, consumers and taxpayers."
"Sitting on our hands and being morose is the last thing we need now," said the minister.
As the economy nosedives, jobless lines are set to grow, the economy ministry added, with an estimated 3.72 million unemployed this year, growing to 4.62 million in 2010 -- the "peak," according to zu Guttenberg.
In 2008, average unemployment was 2.27 million.
These figures are sure to be uppermost in Chancellor Angela Merkel's mind as she seeks a second term as German leader in elections on September 27, with the economy set to play a central role in the campaign.
And as the country's economic decline worsens and unemployment figures balloon, fears are growing in Germany that anger could begin to spill over into the streets.
The head of Germany's DGB federation of German trade unions, Michael Sommer, has warned that workers and unions would take mass layoffs as a “declaration of war.”
"At that point, social unrest can no longer be ruled out," Sommer said.
Gesine Schwan, the Social Democrat candidate for the largely ceremonial post of president, ruled out burning barricades but said the government "had to prevent the disappointment being felt by many turning into an explosive mood."
"In the current crisis we should not dramatise things or fan fears, but neither should we mask the reality," the centre-left Schwan said.
Police are bracing for what could be one of the most violent May Day protests in years following a spate of arson attacks on mainly upmarket cars such as BMWs and Mercedes in major cities.