Germany's export sector will suffer particularly under the international financial crisis, and the country is unlikely to emerge from its economic doldrums anytime soon, the finance ministry said.
Germany's export economy is especially vulnerable to overall economic weakness
Germany's economy was "barely changed" between July and September, according to a monthly finance ministry report.
"Industry indicators predict weak overall economic activity in the third quarter, which should continue into 2009," the report said. Production and orders seemed to be down, generally, the report noted.
The report noted that Germany's crucial export sector is likely to hobble the economy at some point.
Growth estimate slashed
"Immediate consequences of the global crisis on financial markets have been limited so far in Germany. But the crisis will be felt through a slowdown in the global economy," said the report, which included previously published data.
Will German cars sell in a recession?
The report said the "weakness of the global economy has weighed on exports" that contribute significantly to the economy, given that Germany is the world's leading exporter.
The government forecasts annual growth this year of 1.7 percent, owing to an exceptionally dynamic first quarter, but recently slashed its estimate for 2009 to just 0.2 percent.
Third-quarter figures are expected in mid-November, but officials have warned gross domestic product would probably be "almost unchanged" from the second quarter, when it contracted by 0.5 percent.
Two quarters running of economic contraction are the commonly accepted definition of a recession.
VW predicts carmakers will suffer
Meanwhile, Volkswagen Chairman Ferdinand Piëch told a German newspaper that he expects the German car industry to face a prolonged downturn.
The world economy suffering under the problems of the capital market, which is further damaging the already weak German economy, Piech told the Bild newspaper.
Retailers say they want long-term solutions
The auto industry should be prepared for "a long dry spell" he said, adding: "No one can say when we will get out of this valley."
For its part, the Association of German Retailers, or HDE, releasted a statement calling for the govenrment to implement long-termchanges instead of short-sighted, industry-specific aid packages.
Plea for tax relief
HDE President Josef Sanktjohanser came out against "short-term, branch-specific programs," instead calling for "more financial latitude" for companies, including lower taxes and fees.
Talking to the Frankfurter Allgemeinen Zeitung on Thursday, Oct. 23, he said his group was calling for an end to progressive income taxes.
"The government should not offer short-term relief, but instead should increase disposable income for everyone."