Weber Signals Germany May Contract More Than Forecast in 2009

By Gabi Thesing and Christian Vits

Jan. 9 (Bloomberg) -- Bundesbank President Axel Weber signaled that Germany’s economy may contract by more than the central bank previously forecast as a recession worsens.

“The final quarter of 2008 may have been worse than we expected,” Weber said in the text of a speech delivered in Cologne late yesterday. “This would weigh on our growth projections for the current year.”

The Bundesbank in December forecast Europe’s largest economy will contract 0.8 percent in 2009 before expanding 1.2 percent in 2010. With the global economic crisis eroding export demand, German companies are paring output and cutting jobs.

Weber and European Central Bank President Jean-Claude Trichet, who spoke in Slovakia last night, didn’t comment on the outlook for interest rates. Weber referred to the communications blackout period one week before an ECB rate-setting meeting.

Trichet focused his speech, which marked Slovakia’s accession to the euro region, on the need for the country to carry out “ambitious” economic reforms.

Weber said German companies have improved efficiency over the past decade, making them better equipped to cope with a downturn. He also said lower oil prices and the euro’s decline should cushion the economy.

“Furthermore, globally expansive monetary and fiscal policies this year will help,” said Weber, who sits on the Governing Council of the ECB. “Both give reason to hope for a pick-up in economic growth next year.”

Weber described some “particularly negative” economic growth predictions for Germany as “scare-mongering.” Deutsche Bank AG chief economist Norbert Walter predicts the economy may shrink as much as 4 percent in 2009, while BNP Paribas SA economists forecast a 3 percent contraction.

“Some forecasts are presenting downside risks, which are merely potential developments that are unlikely to materialize, as fact,” Weber said.

The ECB on Dec. 4 lowered its key interest rate by an unprecedented 75 basis points to 2.5 percent and investors expect another cut of at least 50 basis at the next meeting, Eonia forward contracts show.

To contact the reporter on this story: Gabi Thesing in Frankfurt at gthesing@bloomberg.net