The German government says the economy will contract by 2.25 percent this year.
That is a marked downturn from its projection for GDP growth of 0.2 percent made just last October. And it highlights how quickly the outlook for Europe’s largest economy has deteriorated. The Finance Minister Michael Glos was however upbeat “How will things be in 2010? We expect that the worldwide economy will overcome its weaknesses and will race towards a new process of growth.” According to the government’s annual economic report, Germany is sinking into its deepest recession since World War II as its export sector suffers from a collapse in foreign demand. By contrast, it expects private consumption to rise by 0.8 percent, boosted by twin economic stimulus packages it says are worth a combined eighty one billion euros. European Central Bank President Jean-Claude Trichet, echoed Berlin’s conclusions, as he addressed a European Parliament committee: “Looking ahead, both global and euro area demand are likely to remain dampened for a protracted period, at the same time declining inflation rates should support real disposable income in the period ahead. This outlook remains surrounded by exceptionally high uncertainty.” Trichet also played down the threat of deflation and said suggestions that countries could leave the euro zone in wake of the financial crisis are “unfounded.”