By Andrea Thomas and Nina Koeppen Of DOW JONES NEWSWIRES
BERLIN -(Dow Jones)- German fiscal arithmetic looks increasingly fragile as more private-sector economists revise their own forecasts to show double the rate of economic decline still used by government planners.
The German government’s forecast, which it will review again on April 29, was set in January to show a 2.25% contraction in gross domestic product this year. But Germany’s anticipated 2009 tax intake is still based on an October forecast of 0.2% growth in 2009.
Private-sector economists and think tanks that regularly advise the government see much worse on the way, with sharper GDP cuts eating into tax revenue and driving up welfare costs.
Commerzbank AG, Germany’s second largest bank by market capitalization, said Monday it now expects the euro zone’s largest economy to shrink by between 6% and 7% in 2009.
Also Monday, Duesseldorf-based think tank IMK forecasts real GDP to contract by 5% and the Essen-based RWI research institute predicted a 4.3% contraction.
They joined the prevailing consensus that began earlier in the year when economists at Deutsche Bank AG, Germany’s largest bank, shocked German markets by predicted a GDP contraction in 2009 of at least 5%.
The prospect that falling revenues and rising welfare costs will put Germany in a fiscal squeeze comes as the German government continues to resist U.S. calls for more fiscal stimulus. Chancellor Angela Merkel’s government, however, argues that previously-agreed stimulus plans threaten to push Germany still deeper into debt.
Alfred Boss, tax expert with the Kiel-based IfW research institute, said by way of example that Commerzbank’s forecast for the economy falling 6.5% would translate in Germany’s 2009 tax revenues to fall short of previous expectations by EUR42 billion.
German GDP contracted in the final three quarters of 2008 on plunging exports and manufacturing orders will prompt the government to significantly adjust its GDP forecast and fiscal planning.
Michael Glos, who was Germany’s Economics Minister until last month, said a sharp decline in exports should prompt a contraction in GDP of between 4% and 4.5%. He was speaking at a dinner organized by think tank Frankfurter Zukunftsrat Sunday.
German orders and production in January plunged at “a dramatic pace that has no precedent in the country’s post-World War II history,” said Commerzbank chief economist Joerg Kraemer. “This has pulled the rug out from under our previous forecast” of a 3% to 4% drop in GDP, Kraemer said.
The IMK institute said that exports - the growth engine of the past upswing - are crashing much more than expected at the beginning of the year.
“The drastic decrease will likely continue until the mid of 2009, all the more because the economic outlook of the most important trading partners has deteriorated,” IMK said in its report.
The government has implemented several economic measures which will raise Germany’s budget deficit by around EUR15.5 billion this year and EUR24.1 billion in “I am getting worried about this, debt will rise drastically,” said Boss, the Kiel tax expert. “One can only hope, or maybe even pray a little bit, that the central banks will recollect again the money that has been distributed beforehand because otherwise inflation will rise strongly.”
After Germany also bailed out troubled Hypo Real Estate recently, the federal government forecasts that its 2009 net borrowing requirement would likely reach the highest level in six decades, surpassing the EUR40 billion record set in 1996.
RWI Monday forecasts a German budget deficit of 3.5% of GDP in 2009 and a deficit of 4.7% in 2010, widely overshooting the 3% limit set down for countries sharing the euro currency.
-By Andrea Thomas and Nina Koeppen, Dow Jones Newswires; +49 (0)30 2888 4126; andrea.thomas@dowjones.com
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(END) Dow Jones Newswires
March 23, 2009 08:43 ET (12:43 GMT)
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