Germanys economy could shrink by three to four percent this year, the head of the German governments panel of economic advisers told Reuters on Tuesday. Wolfgang Franz, head of the group known as the five wise men - although it includes one woman - said first quarter growth will likely be strongly negative but the downturn could reach its lowest point in mid-year.
"My best estimate is that the first quarter of this year will be as (bad) as the fourth quarter of 2008," said Franz, who is also head of the ZEW economic research centre. "Given the statistical underhang of -2 percent for 2009, my expectation is that the German economy will end up with a growth rate this year of between -3 percent and -4 percent," he said in an interview with Reuters TV after the ZEW economic sentiment index rose unexpectedly in March.
The sentiment index for Europes biggest economy rose to -3.5 from -5.8 in February, the highest since the summer of 2007. But ZEWs measure of current conditions went deeper into negative territory, falling to -89.4 from -86.2 in February.
In the final three months of last year, Germanys economy shrank by 2.1 percent, the worst quarter since reunification. German manufacturers have been hard hit by the global downturn, crimping exports and causing industrial output to fall by a record 7.5 percent in January, while the number of jobless has risen to 3.5 million.
"I think it is possible that the downwards move in the economy will come to an end in summer," Franz said, adding that the countrys economy could start to pick up in 2010. "I hope that we can remain below 4 million unemployed this year."
Inflation rates would likely dip into negative territory, but this was not real deflation, Franz said. The government has agreed twin economic stimulus packages worth some 81 billion euros to try to cushion the impact of the global downturn on the German economy, partly by giving consumers incentives to buy new cars.
Franz said he did not back a third government stimulus package but noted that the European Central Bank - which has already cut rates to a record low of 1.5 percent - had indicated it could do more to support the economy, possibly also through direct asset purchases.
"The ECB has already announced the possibility that they will cut the interest rate to say, 1 pct," he said. "The ECB should also consider the possibility of buying debt as a last resort, the ultima ratio would also be the purchase of government bonds on the secondary market." But Franz said he trusted that the ECB would act against any future increase in inflation pressures and raise interest rates again when it became necessary.
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