Country Report Germany March 2009

Summary

The global financial crisis and its effects increase the risks attached to the Economist Intelligence Unit's political, policy and economic forecasts. Severe recession, more radical policy changes and less political stability are possible.
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 and reform of the global financial system to be managed.
The general government budget is forecast to move from balance in 2008 to a deficit of 3.9% of GDP in 2009 and 5.1% 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 growth falls.
In 2009 we expect the first full-year contraction of the economy since 2002, with GDP falling by 3.3% and by a further 0.2% in 2010.

The grand coalition of the conservative CDU and the Social Democratic Party (SPD) has ramped up its response to the sharp contraction in economic activity. It is preparing to nationalise the failing bank Hypo Real Estate (HRE).
On February 8th the conservative minister of economics, Michael Glos, resigned. He was replaced by Karl-Theodor zu Guttenberg, a foreign-policy expert and former secretary-general of the CDU's Bavarian sister party, the CSU.
At an EU summit on March 1st, Germany agreed to a case-by-case framework for dealing with crises in other member states.
In February a real-estate bank, Aareal, was given a public equity injection of 525m and received loan guarantees of 4.5bn, while Volkswagen Bank, which specialises in car-financing loans, received loan guarantees of 2bn.
The states of Hamburg and Schleswig-Holstein injected 3bn into the world's largest ship financier, HSH Nordbank, and gave it loan guarantees of 10bn, while the government will guarantee 100bn of non-financial corporate debt.
In the final quarter of 2008, real GDP contracted by 2.1% quarter on quarter in seasonally and calendar-adjusted terms. A strongly negative net export position was responsible for the contraction.
Seasonally adjusted total employment reached an all-time peak of 40.4m in October 2008, but in the three months to January 2009 a fall of 118,000 was registeredthe first sustained decline in three years.

Source: Country Report

This report covers the following industry codes:
SIC Code: 10
NAICS Code: 212