German economy to shrink 2.2% in 2009 – Ifo institute

11 December 2008 16:18  [Source: ICIS news]

TORONTO (ICIS news)--Germany’s economy will shrink 2.2% in 2009 and see a further 0.2% decline in 2010, the country’s Ifo economic research institute said in a forecast on Thursday.

For the ending 2008, Ifo said it sees full-year real GDP growth of 1.5%, down from the 2.5% and 3.0% Europe’s largest economy achieved in 2007 and 2006, respectively.

German economic activity had been clearly in decline since the middle of 2008 after strong growth in the first half, Ifo said.

Ifo’s forecast for Germany compares with an 0.8% decline in 2009 and 1.2% positive growth for 2010 projected by the country’s central bank, the Bundesbank.

Germany’s chemicals industry expects chemical production to fall 1.0% in 2009, a forecast market observers said was optimistic.

According to Ifo, economic weakening in Germany was first noticeable this year in exports, which have fallen sharply since spring.

“The German economy is particularly affected by the weakening in international economic activity, especially because the demand for capital goods has declined, the dominant the German export item," Ifo said.

In the wake of a world recession next year, German exports would be reduced drastically, it said.

The world economy was experiencing a massive downturn on the back of a severe crisis in international financial markets, it said.

The cooling of the world economy climate had affected not only the large economic regions of North America, Western Europe and Asia but also Central and Eastern Europe, Russia, Latin America and Australia, Ifo said.

The only relief was the sharp decline in crude oil prices that gave central banks the scope to drop their key lending rates, the institute said.

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