German Government Forecasts Economy to Shrink 2%, Spiegel Says

By Aaron Kirchfeld

Dec. 13 (Bloomberg) -- The German government expects a “deep” recession next year, predicting a 2 percent contraction, Der Spiegel said, citing a draft report by economists.

The budget deficit will climb to 3 percent of gross domestic product because of declining tax revenue and costs from rising unemployment, the magazine said in a pre-released article. The forecast increases the chances of a further stimulus package, Der Spiegel reported.

The government will “vigilantly” watch economic developments, the magazine said, citing a draft of an annual report due to be published at the beginning of next year. The government may implement further measures to relieve and stabilize the economy if the international crisis worsens, the magazine quoted the report as saying.

German Chancellor Angela Merkel’s government in October slashed its growth forecast for Europe’s biggest economy, saying that gross domestic product will expand 0.2 percent in 2009 as global markets for exports dry up.

To contact the reporter on this story: Aaron Kirchfeld in Frankfurt at akirchfeld@bloomberg.net