Germany expects less than minus 3 per cent growth

 

Frankfurter Allgemeine has cracking scoop this morning, having obtained an internal memo from the economics ministry, which expects a slump in growth of more than minus 3 per cent for next year, by far the worst economic decline in German post-war history. The ministry plans to make this forecast official in its annual economic report, due out January.
 

Worse still, the decline in the present quarter is estimate at 1.25-1.75%. Note these are actual, not annualized figures.

When confronted with those data, the government spokesman presented his usual complacent interpretation. One should not overestimate those figures, he said, given the lack of experience of this type of crisis. The newspaper said there will be a new stimulus, but the focus will be on infrastructure investment (meaning not in time for 2009). Der Spiegel quotes a member of the government of said that the next programme would have a size of at least €20bn, which is less than 1% of GDP. (So even if confronted with an economic slump, Germany is not going to support the economy beyond some token gestures)

 

Sarkozy plans new aid package

Les Echos reports that President Sarkozy plans a new package of mostly loan guarantees to the French car sector, but on condition that the car industry commits not to close any factories in the country and relocate business abroad. Having a meeting with the heads of the French car, tyre, and supplier industries, Mr Sarkozy said the aid would be co-ordinated at European level. The help, if implemented, would also stop current plans by Renault to outsource some production to Slovakia.

 

Facing up to Spain’s contraction

Ed Hugh has an interesting article on Spain’s recession in a Fistful of Euros, in which he says that his estimate for Spanish growth in 2009 is between minus 3-5%. He says Zapatero is seriously mistaken to paint to positive a picture, which is eating into his credibility. Hugh is forecast only a moderate fall in the current account deficit from 10% to 8% in 2010, but a massive rise in the fiscal deficit to 5-7%, which will have enormous implications for bond spreads.

 

IMF predicts only 5% growth in China

This is the worst forecast for China, made by Dominique Strauss Kahn yesterday, and it suggests that the slump in the global economy is still getting worse by the day, FT Deutschland reports. China is a country which needs to grow by 8% to keep unemployment stable, a level of 6% is seen as signalling a deep recession. What the IMF is forecasting now is a dramatic deterioration after 11.9% growth in 2007.

Bloomberg (aka Naked Capitalism) has a report according to which Chinese electrical output, a bellwether of economic activity, has fallen by 9.6% in November.

The Wall Street Journal Economics Blog says the IMF’s prediction for global growth is for 2.2% in 2009, after 3.7% this year. Strauss-Kahn says the optimal policy response would be a stimulus in the order of 2% of world GDP, which would allow a recovery to begin late 2009 or early 2010. But at the current response rate the recovery is likely to be delayed by six months or more.

FT Alphaville also reports Strauss-Kahn as warning of a rise in global violence as the recession gets progressively worse.

 

ECB warns about continued financial market instability

The ECB’s financial stability report, presented yesterday, was gloomy, very gloomy. It said the risk for the financial system had not improved despite the governments’ assistance packages to the financial sector. The report said that US house price are likely to fall until 2010, and also in European house prices are like to decline further, and probably overshoot, which will produce negative feedback loops between financial sector and real economy.

 

Euro is rising and rising and rising

We are back at $1.37, and close to 90 pence per euro, as the European export economy is now facing the additional problem of a sharp appreciation in the exchange rate, on the top of the collapse in global demand.

 

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