German Economy Hits Bottom

BERLIN, May 15, 2009 -- The cause of the dramatic 2.5 percent drop in first-quarter economic growth of the Eurozone, announced Friday, can be traced directly to Germany, home to the European Union's largest economy, which posted a 3.8 percent first-quarter drop in growth. Demand for German high tech products, like cars and machinery, hit Germany hard, economists say. And the long-term outlook for Germany is gloomy

German Finance Minister Peer Steinbrueck clearly was an unhappy man Thursday, when in a preview of the EU numbers, announced that Germany's economy this year is expected to shrink by a huge 6 percent, the most dramatic decline in the country's economy since 1949, when the country was founded.

Steinbrueck explained in a statement Thursday that dire outlook. "Germany has been hit harder by the global crisis than previously estimated. The tax income for the country is expected to fall more than euro 316 billion (approx. $432 billion) short of previous estimates between this year and 2012. As the economic crisis weighs on growth, we will see a bigger budget deficit than we have ever seen."

Steinbrueck had hardly made his gloomy announcement, when the Federal Statistics Office today followed up by issuing its latest figures confirming that slumping exports pushed Germany's gross domestic product (GDP) down by 3.8 percent in the first quarter of this year alone, a far steeper drop than economists had forecast and Germany's worst economic performance since 1990.

The agency said the quarter-on-quarter contraction, based on preliminary data, was led by a sharp decline in exports of high value goods, such as cars and machinery, and a drop-off in investment, making Germany suffer more from the global financial crisis than any other euro zone country.

Germany, the world's leading export nation, appears to be bearing the brunt of the global recession, the agency said.

The country has seen a plunge in exports by nearly 19 percent and the industry is not likely to see an improvement anytime soon despite the massive stimulus packages worth euro 80 billion (approx.$108 billion) introduced by the government.

"This is certainly the worst outlook that we've seen. It proves that the global crisis has hit our export business at full speed," Jörg Krämer, chief economist of Commerzbank, told broadcaster n-tv this morning, "but so far, the domestic consumer market seems relatively unhurt, though people are spending less money in general."

Crisis Hits German Citizens

The global economic crisis affects ordinary people across the country in various ways.

With Germany's decent social security benefits, there is no suffering across the country and people are not panicking, but for most part, the situation can be described as people being more cautious in their spending.

"We just don't go out as often as we used to, and we're putting some money on the side each month for rainy days," said Carsten Gardino, a young salesman. He and his girl friend Nicola, a nursery teacher, used to have dinner at some nice restaurant at least once a week. "Now it's more like once a month."

Erika Zeilinger, a 74-year-old widow living in Bavaria, told ABC News, "Things are becoming more and more expensive every day, and with the financial crisis, who knows what lies ahead of us, so I think I just have to be more careful with my money."

At age 54, Mathilde Baumgart works part time as kitchen help at a restaurant trying to beef up the family budget, while her 59-year-old husband Kurt is unemployed.

He collects unemployment benefits, so the basic expenses are covered. "Together we make ends meet, but with the current situation there's no chance my husband will find a job anytime soon," says Mathilde.

Many companies battling with falling demand have placed staff employees on short-term working contracts rather than laying them off, hoping to outlast the current crisis. They include automakers BMW, Mercedes-Benz, Ford and Opel, but unemployment is still expected to rise to 5 million jobless by the end of next year, climbing to 10.8 percent from 9 percent this year.

However, there may be a silver lining on the horizon. "I think the free fall lies clearly behind us," said Krämer, while German carmaker BMW said Thursday that starting in June it would resume two shifts a day at its Leipzig plant, where it had reduced production to one shift in November to adjust to weaker demand mainly by the U.S. market.