MercoPress. South Atlantic News Agency

German economy forecasted to contract 2.2% next year

Germany's Munich based Ifo (Institute for Economic Research) expects the German economy to contract 2.2% in 2009 and continue falling into the following year, according to a forecast published on Thursday.

The prestigious economics institute predicts that GDP will fall an additional 0.2% in 2010, with declining tax revenues and growing public expenditure on jobless benefits likely to lead to a German government deficit of 1.4% of GDP in 2009. The deficit will likely grow to 2.9% in the following year, Ifo added. "Signals for the German economy are flashing red for 2009," Ifo said in a statement. "The German economy, which benefited in particular from the strong global economic upswing because of its trade orientation, is now being pulled into the maelstrom that the financial crisis has created globally." The German economy slipped into recession in the third quarter as exports, the economy's main drive weakened. Ifo said that by 2010, unemployment in Europe's biggest economy could climb as high as 4 million compared with the nearly 3 million jobless in November. Ifo noted that businesses â€" from major auto makers to family owned shops â€" have seen drops in orders, lower property values and reported weakening outlooks for the future, a trend which has had "a dampening effect." And the future will get bleaker before it gets better, Ifo said, citing the increasing difficulty for companies to get financing, falling profit outlooks and reduced spending on new equipment. Last week, Germany's central bank predicted that the country's economy will shrink 0.8 percent next year. The Bundesbank bank said that, assuming the situation on financial markets calms and the global economy picks up, the German economy is likely to grow by 1.2% in 2010. If the 2.2% contraction next year proves right it would be the worst in German history since the end of the World War II (1945). The GDP downfall 0.9% was during the oil crisis of 1975, followed in 1993 (minus 0.8%) in the midst of the German reunification process. In related news figures released earlier this week showed French industrial production had posted its largest annual fall on record in October, dragged down by the struggling car industry. Output fell 7.2% on an annual basis, the largest drop since January 1991 when the series began, national statistics office INSEE said. As in the rest of industrialized countries output in the troubled car industry tumbled 14.3%, the largest decline since August 1999. On Wednesday it was informed Italy was officially in recession as data confirmed slowing growth for a second consecutive quarter and falling industrial production further clouded the outlook for the Euro zone third largest economy. The economy shrank 0.5% in the third quarter, the national statistics agency ISTAT announced, confirming figures released in mid-November. It was the second consecutive quarter of falling output -- the definition of recession -- after the economy shrank 0.4% in the April-June period.