German economy set to contract by 6% and unemployment to hit 5m
Europe’s largest economy, Germany, is the latest to receive a gloomy outlook after leading economic think tanks forecast that the economy is set to contract by 6% this year and 0.5% in 2010.
In comparison, the International Monetary Fund (IMF) is forecasting that the German economy will contract by 5.6% this year.
The bad news continues for Germany with unemployment set to rise to just under 5 million with the rate of unemployment reaching 10.8% next year.
The estimates, compiled by eight institutes for the German Economy Ministry, come as the country is experiencing its deepest recession since 1949 – at the time of the founding of the Federal Republic of Germany.
The institutes, Ifo in Munich, IfW in Kiel, RWI in Essen and IWH in Halle, together with the Austrian think-tanks, WIFO and IHS and the Swiss KOF, are urging the European Central Bank (ECB) to reduce borrowing costs to fight off a prolonged recession.
The IMF has previously had the same opinion highlighting that the ECB has further room to cut the benchmark interest rate, which should help to stimulate the economy and provide much needed help to the industrial and manufacturing sectors.
ECB’s rate currently stands at 1.25%.
The country is the world’s largest exporter and many reports have suggested that the country’s exports are in ‘free fall’.
Meanwhile, the bleak outlook for the country is shared by some of its major companies after Karl-Thomas Neumann, boss of car parts firm Continental, said: “It will probably take five years before demand is back to its pre-crisis level in 2007.”
Franz Fehrenbach, the chief of rival Robert Bosch, expects a deep recession that will last throughout 2009.
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