German Finance Minister Peer Steinbrueck said today that Europe's biggest economy could contract by up to 1% in 2009 in what economists say would be the biggest decline since World War II.
'The information that I have so far give a range of between +0.2% and -1%,' Steinbrueck said in parliament in the first official confirmation that Germany may be entering a serious recession.
Berlin's current forecast for next year is for 0.2% growth but with Germany having already entered a technical recession in the third quarter of 2008 many economists have much bleaker forecasts.
Steinbrueck said that the government went for optimism with the prediction, adding that 'no-one could say how long the German recession is going to last.'
The Organisation for Economic Cooperation and Development said today that the recession in Germany would stretch far into next year and forecast a contraction in gross domestic product (GDP) of 0.8%.
The world's leading exporter, which is highly dependent on international trade, is expected to be severely hit by the global slowdown via lower growth of export markets, especially for investment goods,' the Paris-based OECD said.
Berlin announced earlier this month a raft of measures including tax breaks and infrastructure spending that it says is worth €32 billion over two years and will stimulate €50 billion worth of economic activity.
But the country has been coming under pressure to do much more to boost the economy, with a growing chorus of voices saying that the measures announced so far by Chancellor Angela Merkel are too little.
Consumer confidence picks up despite recession
New figures today show that German consumer confidence picked up slightly despite Europe's biggest economy falling into recession. But it could drop quickly if hit by gloomy employment news, a poll released by the GfK institute shows.
The forecast GfK index rose to 2.2 points for December from 1.9 points this month. Although it remained at a very low level, the general mood favoured moderate consumption despite economic headwinds, it said.
Falling energy prices that helped to push up disposable income were a main factor behind the increase, the institute explained.
A recent wage agreement in the metallurgy sector that gives workers a 4% increase over 18 months also helped to brighten moods, it added.
In addition, approaching end of year holidays provided further encouragement for shoppers, and GfK also noted that Germans had in general reduced their average savings levels.
The roughly 2,000 consumers questioned during the survey had similar hopes for their personal income outlook, with the fourth monthly gain in a row. However the indicator was down almost seven points in a year-on-year comparison.
For consumer confidence to continue rising, inflation will have to fall further while job prospects continue to resist the country's first economic recession since 2002-2003, the institute said.
If the number of unemployed workers climbed noticeably, it would have a sustained negative effect on consumption, it added. Forecasts for a slight increase in consumption next year would in that case be delayed for some time, GfK said.
