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German Economy Set To Contract?

Written by A Forex View From Afar on Tuesday, March 24, 2009

The latest forecast for Germany points out that the economy might contract a whopping 6% this year, as the credit crisis reduces foreign demand for German made goods.

Commerzbank, one of the leading German banks, said that the German economy might contract 6% to 7% in 2009. At the same time, Deutsche Bank and BNP Paribas project a 5% contraction in 2009 for the German economy. The German Institute for Economic Research estimates that the economy will contract between 4% and 5% this year.

By far, these estimates are the worst for any European economy, including the much-spoken-about Eastern Europe. Among the developed countries, only Germany and Japan share such an downbeat forecast.

As was said before, the export component is the biggest drag on the German GDP. Until now, exports have dropped by 20%, while the outlook clearly lies to the downside. Even if the global economy would miraculously bottom, demand and thus exports would still need some time before picking up again. Exports account for almost 40% of the German GDP.

Obviously, Germany is not the only victim of the credit crisis in Europe. Today, the Czech government collapsed, by gaining a no-confidence vote from the parliament, while just yesterday, the Hungarian government resigned. Wonder who will follow next?

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