Berlin - The German economy, Europe's biggest, is on the edge of recession and looks set to notch up growth of only 0.2% next year, leading economic think tanks said on Tuesday.
"In the autumn of 2008, the German economy is on the brink of a recession," the institutes wrote in their latest economic outlook.
"Demand and output have declined so far this year and sentiment indicators have completely caved in," the report said.
"A number of negative shocks from outside Germany had already clouded the economic climate. But the dramatic developments on the financial markets have led to an even sharper deterioration in prospects," the think tanks wrote.
"On the basis of current indicators, overall economic output will decline. But under our basis scenario, the economy will stabilise again after the end of the year."
The institutes - Ifo in Munich, IfW in Kiel, RWI in Essen and IWH in Halle, together with the Austrian think tanks, WIFO and IHS and the Swiss KOF - predicted that German gross domestic product (GDP) would expand by 1.8% for the whole of 2008, much slower than last year's growth of 2.5%.
And in 2009, GDP was set to expand by just 0.2%, the report stated.
That was what the institutes called their "basis scenario."
Real economy not badly hurt
But in view of the exceptionally high level of uncertainty stemming from the international financial crisis, they also drew up a more pessimistic scenario, according to which the German economy would actually contract by 0.8% next year.
The so-called "risk" scenario was based on the assumption of a worldwide recession in 2009 that would translate into an increase of just one percent in global trade, a sharp deterioration in financing conditions for companies and private households and growing uncertainty among consumers, the institutes said.
The institutes publish their widely-watched outlook twice a year, generally just before the government updates its own outlooks.
On Thursday, the economy ministry is to unveil its latest growth estimates, which will undoubtedly be revised sharply lower.
For the moment however, it is hard to evaluate the effect of the international financial crisis on German economic activity.
On Monday, Economy Minister Michael Glos said the "real economy," as opposed to the financial economy, had not be badly hurt so far, and that a feared credit crunch had not materialised.
But the German economy, which relies heavily on exports, is likely to suffer from economic slowdowns in countries like the United States or Spain, for example.
Some sectors, such as machine tool manufacturing, have already recorded a sharp decrease in orders.
- AFP