Country Report Germany September 2009

Summary

The Christian Democratic Union (CDU) is all but guaranteed to emerge as the strongest party at an election to be held in just over two weeks, and the chancellor, Angela Merkel, will therefore retain the premiership.
The chances of Ms Merkel and her preferred coalition partner, the Free Democratic Party, forming a coalition is slightly above 50%. If these parties cannot make up the numbers a protracted period will be required for negotiations.
Foreign matters will remain high on the political agenda during the outlook period, as challenges emanate from Russia, Iran and Afghanistan. The stability of some European economies may well cause strains in the EU.
The general government budget is forecast to move from broad balance in 2008 to a deficit of 4.6% of GDP in 2009 and 5.5% of GDP in 2010.
With interest rates in the euro area at 1%, the Economist Intelligence Unit does not foresee further reductions in rates. The monetary authorities may intensify their unorthodox policy measures if conditions do not improve.
In 2009 we expect the largest contraction of the economy since records began, with GDP falling by 5.1 %, before registering modest growth ion 2010.

According to an opinion poll published on September 4th, the CDU and its preferred coalition partner, the Free Democratic Party enjoyed combined support of 52%. The SPD, the Left Party and the Greens had 44%.
Ms Merkel has been at the centre of her party's election campaign, adopting a quasi-presidential posture. This tactic is designed to take advantage of her considerable absolute and relative popularity.
According to polls 62% of voters want Ms Merkel to continue as chancellor, while only 26% want her rival, Frank-Walter Steinmeier of the SPD, to take the top job.
In the first six months of 2009 the general government deficit reached ???17.3bn (in the same period in 2008 there was a surplus of ???7bn). Relative to GDP, the deficit stood at 1.5% in the first six months.
On August 31st working groups of employer and employee representatives agreed to implement minimum wages in the mining industry, laundry services and waste management.
In the second quarter of 2009 real GDP expanded by 0.3% quarter on quarter, after four consecutive quarters of contraction, thus ending (for the time being at least) the deepest recession in Germany's post-war history.