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Business

Germany Hasn't Hit Bottom Yet, Economists Say

Two German institutes are forecasting that the economic downturn will be worse than previously thought as the government confirms that Germany's industrial production was down sharply in January.

Women on a television assembly line

Industrial production is down sharply, the government says

Germany, which is highly dependent on exports, will be hit especially hard by the global economic downturn, according to two leading economics institutes.

Germany's Institute for World Economy has predicted that the German economy will contract by 3.7 percent in 2009. In December, the institute had forecast a 2.7 percent contraction. The Hamburg Institute of International Economics (HWWI) released a slightly bleaker prediction, putting the contraction at 3.8 percent.

If things go as badly as economists forecast, 2009 will be the worst year for German growth since the Great Depression, the Institute for World Economy said Thursday, March 12.

According to figures released Thursday, German industrial production in January fell by an astounding 7.5 percent amid signs that the global credit crunch is tightening its grip on Europe's largest economy. This comes on the heels of news that both German factory orders and export numbers also fell by substantial margins in first month of 2009.

The German Economics Ministry, which released the figures, said the slump was due to companies shying away from major purchases and expansions, which has hit building sector and capital goods manufacturers particularly hard.

It'll get worse before it gets better

Picture of a woman in front of a falling stock index

Germany has not yet reached the economic low point

While this news seems bad enough, the situation is likely to get worse before it gets better.

January's bleak German industrial figures suggest that the economy's rate of contraction is still accelerating, Jennifer McKeown, European economist with the Capital Economics research group, told the DPA news agency.

That warning was echoed by ING economist Carsten Brzeski, who said the conditions in the German industrial sector are deteriorating at an alarming rate and the ongoing collapse of new orders bodes ill.

"The industrial sector will be a huge drag on growth in 2009," he added.

Unemployment figures

German unemployment rose for the fourth straight month in February to 7.9 percent, according to the nation's labor office.

On Thursday the IAB research arm of the German labor office revised up its 2009 forecast for the number of unemployed to between 3.6 and 3.7 million after averaging 3.268 million in 2008. Previously it had expected joblessness to average between 3.3 and 3.4 million this year.

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