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Business

Germany's Economy Set for Long Downturn, Experts Say

Germany's economic downturn may be worse than expected with many companies hit hard by the global slowdown and struggling to get new orders, experts warned on Monday.

Two construction workers in Frankfurt

Many German firms may be forced to lay off workers because of a lack of new orders

In an interview with German daily Bild on Monday, Aug 4, the head of the Munich-based Ifo Institute for Economic Research, Kai Carstensen warned that the mood among businesses was grim.

"Companies' expectations for the next six months are terribly bad," Carstensen said.

Though order books are full right now, there are no new orders, Carstensen warned.

"The upturn will definitely be over in winter. Many companies will gradually start cutting back on production and also lay off staff."

The newspaper reported that German companies rated their order situation to be the worst in two years.

A metal worker at a factory in Magdeburg

Germany's metal industry is worried about getting new orders

Germany's engineering and electronics employer group, Gesamtmetall also voiced worries about the effects of a cooling global economy.

"The global economic slowdown is increasingly affecting the metal and electronics industry," Gesamtmetall President Martin Kannegiesser told Bild. "In many companies, there's enough work to last only until the end of the year."

"Heading towards zero"

The news comes on the heels of top German carmakers showing signs of suffering from the global downturn.

Last Friday, BMW said it would miss its 2008 targets, following rival Daimler with a profit warning as soaring oil and raw materials costs combined with a faltering US economy begin to bite the auto sector.

"The downturn will last longer and hit harder than companies have so far assumed," Deutsche Bank's Chief Economist Norbert Walter told newspaper Tagesspiegel am Sonntag on the weekend. "On the labor market, there will be bad news during the whole of 2009."

German joblessness fell by 20,000 on the month in July to 3.250 million. However, economists say falling unemployment will soon be overtaken by developments in the broader economy and warn that the buoyancy of the labor market will not last.

Buffeted by the global credit crisis, a weakening US economy and soaring prices for oil and raw materials, the clouds over the German economy have grown since the start of the year.

"The idea that we can continue to grow briskly with the few countries that are ticking along is unrealistic, in light of the numerous countries that are no longer ticking along," Walter told Tagesspiegel am Sonntag. "For years we had double-digit growth rates in exports, now we are heading towards zero," he added.

Growth slower in euro zone than in the US

Analysts have already begun reversing downward their growth projections for Europe's largest economy.

The German Finance Ministry said last week that German gross domestic product (GDP) shrank considerably in the second quarter after a strong start to the year, when Europe's largest economy expanded at its fastest rate since 1996.

A woman with shopping bags

Retail sales in Germany have fallen amid a downbeat mood among consumers

German business daily Handelsblatt said that based on a survey of 10 leading German and international banks and research institutes, big German companies will have to reckon with shrinking profits this year. Hopes that Europe could isolate itself from the economic crisis in the US have evaporated, the paper said.

Instead, current forecasts show that both economic growth and rise in profits in the euro zone in 2008 may be slower than in the US, the paper said.

The experts surveyed by the paper expect growth of just 0.9 percent in the euro zone for next year as against 1.5 percent in 2008 and 2.7 percent in 2007. In June, the European Central Bank had forecast a growth rate of 1.5 percent for the euro zone in 2009.

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