German Govt. Slashes 2009 GDP Forecast, Sees Growth In 2010

The Federal Ministry of Economics and Technology said gross domestic product, or GDP, will fall 6% this year, before rising 0.5% in 2010. The forecast for 2009 was lowered from an earlier prediction of a 2.25% contraction.

The latest government outlook matched a joint forecast released by a group of German economic think tanks last week. Meanwhile, the International Monetary Fund expects a 5.6% contraction in 2009 and a further 1% decline in 2010 for the largest Eurozone economy. Meanwhile, the Commmerzbank expects 6%-7% contraction this year.

On April 27, European Central Bank Governing Council member Axel Weber told German newspaper Frankfurter Allgemeine that the German economy is unlikely to grow before the second half of the next year.

Announcing the latest outlook, Economy Minister Karl-Theodor zu Guttenberg said the massive global downturn and the associated fall in the country's exports will lead to a negative growth this year.

Recent economic indicators have showed that the consumer morale stabilized despite recessionary economic conditions, while business confidence rose from a record low. Investor sentiment in April turned positive for the first time since July 2007.

The government expects domestic demand to fall 1.5% this year and to rise by 0.2% in 2010. Private consumption, which is an important stabilizing force for the economy is forecast to fall 0.1% in 2009 and 0.3% in 2010.

Exports, the main growth driver of the economy, will drop 18.8% this year before recovering by only 0.2% in the coming year, the government forecast said. On the other hand, imports are set to fall 10.6% and are expected to rise 0.4% in 2010. Meanwhile, inflation is likely to be at 0.3% in 2009 and to rise to 0.7% in 2010.

Moreover, the government sees the number of unemployed to increase to 3.7 million this year and to 4.6 million in 2010. In March, seasonally adjusted unemployed persons in Germany rose 69,000, bigger than 50,000 increased in February.

Guttenberg noted that the stabilization of the banking and financial sector remains the biggest challenge for authorities in bringing the economy back on a sustainable growth path.

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