German economy’s slump seen bottoming out

German economy's slump seen bottoming out
Photo: DPA
The worst is over for the German economy, economists at a major research institute said Thursday. But unemployment will still rise sharply and growth will be meagre through 2010.

In its latest economic forecast, the Kiel Institute for the World Economy (IfW) estimates almost 4.4 million Germans will be unemployed in 2010 – up from 3.6 million in 2009.

The economists did see the tiniest of green shoots in the German economy and believe it could grow 0.4 percent next year, revising an IfW forecast from March that estimated the economy would shrink 0.1 percent in 2010.

IfW head Wolfgang Franz said data about slowly-improving business conditions shows that “the economic crash has come to a halt in the last few weeks, the worst is behind us.”

The report said German companies had “less negative” expectations about future business conditions and that demand for raw materials had risen slightly. Though Franz was optimistic about the big picture, he was gloomy about the labour market.

“In contrast to the economy, unfortunately the worst is ahead of us,” when it comes to unemployment, Franz said. He added, Germany’s best case scenario will be a “less dramatic” rise in the unemployment rate. Though unemployment will certain pass the four million mark, Franz was certain it would not exceed five million.

IfW economists said in the report that the dramatic slide in world trade has finally come to a halt though the recession has “by no means been overcome.” Germany’s dependence on exports has hurt it more than other countries, including the United States, which will see its economy shrink only half as much as Germany’s, or about 3 percent in 2009.

Exports will recover slightly in the second half of the year, according to the IfW forecast, easing some of the pressure on Germany. The researchers also said Germany had profited from its stimulus package, including the so-called scrap premium that allowed consumers to trade in old cars for new ones.

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