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'Dramatic plunge' in German economy

Guardian Economics 15th May 2009

Biggest quarterly decline in GDP since records began in 1970 as export-driven country battered by collapse in world trade

Germany's economy has suffered its biggest quarterly decline on record - the worst in at least four decades - after a sharp drop in exports.

The economy shrank by 3.8% in the first three months of the year compared with the previous quarter. Germany's federal statistical office said this was the biggest drop since it began compiling quarterly figures in 1970. It was also worse than the 3% fall forecast by economists.

"This is a dramatic plunge and a worse start to the year than we could have imagined," said Juergen Michels of Citigroup. "It can't get much worse, but not much better either. It is questionable whether the economy will grow again this year."

The decline was driven by sharp falls in exports and investment and marks the fourth quarter of contraction - Germany's longest economic slump on record.

The export-driven economy, which has been battered by the collapse in world trade, shrank by 2.2% in the fourth quarter of last year and by 0.5% in each of the two previous quarters.

The euro slipped against the dollar on the news. It fell to $1.3598 from $1.3625 before the data, 0.3% down on the day.

Compared with a year ago, gross domestic product (GDP) fell by 6.7% in the first quarter.

Angela Merkel's government expects the slump in the key export sector will lead to a record contraction of 6% in GDP this year and only meagre growth of 0.5% in 2010.

The European commission has already warned that the eurozone is in its deepest and widest recession since the second world war and recovery will not start until next year.

Earlier this month, the commission said it expected the recession across Europe to be twice as bad as previously predicted and more than 11% of the workforce to join the ranks of the unemployed. Germany, Europe's largest economy, is at the centre of the eurozone's slump. The EU is forecasting the German economy will shrink by 5.4% this year.

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