Economic Forecast 2009/10

Following the nosedive since autumn 2008 the German economy will soon be over the worst. Despite the prevailing uncertainties the economists at Allianz regard a recovery from mid-year as the most likely scenario. The positive boost from the stimulus packages, low interest rates and the massive drop in commodity prices are starting to have an effect.

Over the year as a whole German gross domestic product will shrink by 3% in 2009 following the two poor quarters at the start of the year, although downside risks still exist. For the euro area the economists are forecasting a drop of 2.3%, global output is likely to decline by 1.4% (country weighting based on current exchange rates). For 2010 the forecast predicts 2.0% growth for Germany, 1.6% for the euro area and 2.2% for the world economy.

In international terms German GDP has taken a relatively severe knock of late. Among the industrial countries only Japan has fared worse. One of the main reasons for Germany’s poor performance in recent months stems from its heavy reliance on exports. Whereas in the USA the share of exports in gross domestic product stood at 13% in 2008, in Germany the figure was around 48%.

“Global production has fallen more steeply than global demand. This will even out again soon. Germany’s particular strength as an exporter of capital goods, which is currently proving a drawback, will then mean that Germany can benefit disproportionately from the upswing,” according to Michael Heise, chief economist at Allianz SE.

In addition, low corporate and private sector debt levels by international standards and the sturdy development of the German real estate market suggest that Germany enjoys better prospects for a sustained recovery than other countries. Although picking up, German exports will not act as the economic engine as in previous upswings. With new borrowing rocketing, the government will clamp down on spending. Private consumption will remain a cornerstone of the economy, as job cuts will peter out and inflation will be tame.

Following the recovery in the second half of this year, the economy will also get off to a better start in 2010 than it did in 2009. However, the overall global backdrop – above all rising unemployment – will hold the economy back. Around the world the impulse from the stimulus packages will start to wane in the course of next year. Although those housing markets hit by the crisis will probably bottom out or, in the USA, recover slightly, next year will not see a return to a broad rise in prices either. All told, the economic recovery will lose steam again in the course of 2010.


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