Germany cuts growth forecast

The latest estimates for 2009 are a sharp downward revision from the government’s projections published last year, which foresaw a contraction of 2.25 per cent.

If the six per cent contraction is confirmed, only Japan among major economies would suffer a worse recession, with a predicted 6.2 per cent decline this year according to the IMF.

‘Social unrest’

As the German economy contracts, unemployment is set to grow as well, Guttenberg says.

He estimates that there would be 3.72 million unemployed people this year, growing to 4.62 million in 2010, which he described as the “peak”. 

In 2008, average unemployment was 2.27 million.

The economy is set to play a central role in the campaign of Angela Merkel, Germany’s chancellor, as she seeks a second term as German leader in elections on September 27.

Merkel will be running for chancellor again in September [AFP]

As unemployment figures balloon, fears are growing in Germany that anger could begin to spill over into the streets.

Michael Sommer, the head of Germany’s DGB federation of German trade unions, has cautioned that mass layoffs would be taken as a “declaration of war” by workers and unions.

“At that point, social unrest can no longer be ruled out,” he said.

Gesine Schwan, the Social Democrat candidate for the largely ceremonial post of president, ruled out burning barricades, but said the government “had to prevent the disappointment being felt by many turning into an explosive mood”.

“In the current crisis we should not dramatise things or fan fears, but neither should we mask the reality,” he said.

Police are bracing for what could be one of the most violent May Day protests in years following a spate of arson attacks on mainly upmarket cars such as BMWs and Mercedes in major cities.

Stimulus rejected

Germany has seen demand for its goods dry up as customers around the world suffer from the financial crisis.

Recent data show German exports plunged by 23.1 per cent in February.

Berlin has already put into place two stimulus packages worth around $106bn but was criticised both at home and abroad for being both too slow to act and too conservative.

However, despite the dire figures, Guttenberg rejected the idea that the government should implement a third stimulus package to inject some life into the economy, arguing it would be “counterproductive”.

He said that the first two packages were “already working” and that a third package would serve only to create more “uncertainty amongst investors, consumers and taxpayers”.