The German government forecast the largest Eurozone economy to contract in the range of 4% to 4.5% this year, the German newspaper Bild reported Tuesday. In January, the government had estimated an annual contraction of 2.25% for 2009.

Yesterday, the Commerzbank AG had downwardly revised its forecast for the German economy, citing the recent collapse of order intake. The bank now expects the economy to shrink 6%-7% this year versus an earlier forecast of 3%-4% contraction. The main reason cited for this downward revision was the recently released January order intake and production data, which plunged at a dramatic pace.

The Essen-based RWI research institute also lowered the GDP estimate for this year. The institute said the German economy is expected to shrink 4.3% in 2009 compared to a 2% decline estimated in December. The RWI forecasts the GDP to expand 0.5% next year. The institute also predicts the budget deficit to increase to 4.7% of GDP in 2010 from 3.5% this year.

Meanwhile, the think tank IMK reportedly estimated real GDP to fall 5% in 2009.

In the fourth quarter of 2008, the German economy experienced the biggest sequential contraction since the reunification in 1990 on plunging exports. The economy shrank 2.1% sequentially in the fourth quarter, after contracting 0.5% each in the second and third quarters of 2008.

In January, the finance ministry said in a note that the economic stimulus package would require a net new borrowing of EUR 36.8 billion. The cabinet also approved a second fiscal stimulus package worth EUR 50 billion in January.

At the annual reception of the Federal Association of German Banks in Berlin on Monday, German Chancellor Angela Merkel said banking bailouts should be solved in a fair way. She called for a fair burden sharing between the taxpayers and urged the banks to accept their responsibilities.

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