Country Report Germany April 2009

Summary

The global financial crisis and its effects increase the risks attached to the Economist Intelligence Unit's forecasts. A prolonged, severe recession would, as elsewhere, imply some political risk.
We maintain our view that the Christian Democratic Union (CDU) will emerge as the strongest party at the next election (scheduled for September 2009) and that the chancellor, Angela Merkel, will win a second term.
Foreign matters are likely to remain high on the political agenda during the outlook period, with the stability of peripheral EU economies in question. Germany will push for radical reform of the global financial system.
The general government budget is forecast to move from balance in 2008 to a deficit of 4.4% of GDP in 2009 and 5.8% of GDP in 2010.
After large cuts in interest rates in each month from October 2008 to January 2009, further cuts are expected as inflation eases and GDP falls.
In 2009 we expect the first full-year contraction of the economy since 2002, with GDP falling by 5.3% this year and by a further 0.8% in 2010.

In recent weeks, Germany has been increasingly assertive internationally in relation to the global economic and financial crises, vigorously defending abroad its domestically popular causes.
Germany's drive to force an international clampdown on tax havens has led to tensions with Luxembourg and a diplomatic row with Switzerland.
Tensions between the coalition partners, the CDU and the Social Democratic Party (SPD), have increased in recent weeks as both seek to differentiate themselves in the run-up to the general election.
On March 25th the cabinet agreed to beef up financial market supervision by giving wide-ranging new powers to the Federal Financial Supervisory Authority, BaFin.
At the summit of the G20 group of leading industrialised nations in London in April, Germany is pushing proposals to tighten international standards for financial market regulation and new measures to clamp down on tax havens.
Sentiment among German businesses deteriorated further in March, according to the Ifo Institute's index of business sentiment; the index fell to 82.1 from 82.6 in February.
Turnover in the manufacturing sector contracted by 20% year on year in January, after a contraction of 12.6% in December 2008.

Source: Country Report

This report covers the following industry codes:
SIC Code: 60;39
NAICS Code: 52;31