Germany contracts 2.5 percent
January 22, 2009
The International Monetary Fund on Thursday revised down its previous forecast for the German economy, saying Europe's economic powerhouse is set to shrink 2.5 percent this year.
The forecast was slightly more pessimistic than the German government's, but both expect the weakest economic performance by far since World War II.
Germany faces a recession that is expected to be "sizeable and extended," according to the IMF. Only two months ago, the Washington based institution which oversees the world financial system, had said that Germany would contract just 0.8 percent this year.
Next year, Germany can a expect an incremental recovery after the gloomy downward projection, but the IMF warned that "risks remain tilted to the downside."
In 2010, Germany, one of the world's biggest exporters, can expect the economy to grow by just 0.1 percent, according to the Fund's projections.
Berlin publishes bleak economic assessment
On Wednesday, the German government's annual economics report predicted rising unemployment as a result of the global economic slowdown.
The number of people out of work is expected to climb by 500,000 to 3.5 million before the end of the year. That would push the German unemployment rate back up to 8.4 percent, according to the report.
Reflecting the slump in Germany's export-oriented economy, carmaker Audi on Thursday said it would stop production for five days in February at its biggest German plant as orders for new cars plummet.
"We do not know yet whether we will move to cut working hours, which would be a first for Audi, or whether to put in place a time-savings account," a spokesman told news agency AFP.
The move follows a similar announcement by Europe's leading auto maker Volkswagen, which said on Tuesday it would idle about two thirds of its 92,000 German workforce for one week next month as it cuts production.
IMF: Germany needs to take lead
The IMF however did praise Europe's largest economy for its efforts to stave off the impact of a recession with stimulus measures and bank bailouts.
Last week the German authorities approved a 50 billion euro ($65 billion) package that would boost government spending for road projects, public transport, school and hospitals, and would include tax cuts to encourage spending.
"Global policy actions and measures to contain the risk of a costly global self-reinforcing slump should preferably be co-ordinated regionally and internationally for maximum effect. Germany has a special leadership role to play in this process," according to the report.