Europe’s largest economy close to recession

Leading economic think tanks believe that Europe’s largest economy, Germany, is close to recession.

The four institutes, Ifo in Munich, IfW in Kiel, RWI in Essen and IWH in Halle, believe that the German economy will only expand by 0.2% next year after revising their growth forecast. They believe that the country’s export sector could suffer just as much as the financial sector.

The institutes added that if the banking sector stabilises, a recovery could be seen from mid-next year.

Meanwhile, another closely monitored index, compiled by the ZEW research institute, stood at -63 points, compared with -41 points in September, well below its historical average of 27.5 points.

The report, issued twice-yearly, said the German economy finds itself in autumn 2008 on the brink of a recession.

In related news, the report welcomed the country’s banking bailout package, announced by Chancellor, Angela Merkel, earlier this week.

Germany, along with its fellow European nations, plans to spend billions of euros to guarantee loans in leading banks in a bid to fight off financial meltdown. Banks’ reluctancy to lend to each other has been the main problem of the credit crunch and it is hoped that loan guarantees will go some way to easing the problems, according to the euro zone.

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