Ifo Economic Forecast 2009: German Economy in Recession

On 11 December 2008 Ifo Institute presented its economic forecast for 2009 and 2010 to the press at its annual pre-Christmas press conference. The world economy is experiencing a massive downturn. The severe crisis in the international financial markets that began in the United States with the collapse of the subprime mortgage market in 2007 has now spread to all sectors of the economy. For businesses and households, financing conditions have worsened; in addition asset losses and profit outlooks are having a dampening effect. In many countries contractive multiplier processes have been set off. All in all, this survey data constellation points to a global recession in 2009. In Germany economic activity has been clearly in decline since the middle of 2008. On the whole, the available business-cycle indicators point to a rapid decline in economic output in the last quarter of 2008, seasonally and calendar adjusted; at a current annual rate the decline was probably -3½ percent. At the same time the capacity usage ratio fell below its low-term average in the fourth quarter. The German economy is consequently in recession. On average for 2008, real GDP has probably grown by ca. 1.5 percent, after 2.5 percent in the previous year. On average for 2009, real GDP - unadjusted and also calendar adjusted - will decline by 2.2 percent. Stabilisation is not expected until 2010, with the gradual subsiding of the financial crisis and the slight improvement of the international environment. Because of the underhang, however, real GDP will still fall by ca. 0.2 percent on average for 2010.