The Kiel Institute for the World Economy (IfW) has delivered one of most pessimistic predictions yet for what is looking like a grim next year.
“Germany likely faces the most severe recession in its post-war history,” the IfW said in a statement, adding that almost all economic indicators have fallen dramatically in recent months. “Confidence surveys among companies point to a massive worsening of the economic outlook.”
The bad news contained in the report for Europe's largest economy was a reversal from previous forecasts, which had previously predicted GDP growth next year of 0.2 percent.
The driving force behind the German economy, exports, is forecast to weaken by almost nine percent next year, compared with a gain of 5.1 percent in 2008. The institute said it expects big slumps in both the final quarter of this year and the first quarter of 2009.
The German economy is already in recession, having contracted in both the second and third quarters of 2008.
IfW researchers said while the labour market has not yet been strongly affected by the negative economic developments, unemployment would likely rise appreciably in 2009 and 2010. The jobless rate is expected to climb from 3.2 million now to 3.6 million next year and reach 3.9 million in 2010.
Amid all the doom and gloom, the report did see some light at the end of the tunnel. The report said that the economy should stabilise by 2010 – orders should increase somewhat and exports regain some strength. IfW economists forecast overall GDP growth in 2010 at 0.3 percent.