Germany's economy is poised to shrink by a record six per cent this year, a group of top economic institutes said yesterdayy, the latest in a series of dire predictions for Europe's largest economy.
As the economy nosedives, jobless lines are set to grow, the institutes added, with more than one million jobs lost this year - a statistic sure to be on Chancellor Angela Merkel's mind five months before a general election.
Nor is the world's top exporter likely to see an improvement any time soon. The institutes predicted that the recession would continue into 2010, with the economy contracting by 0.5 per cent next year and unemployment rising to just below five million.
"On the basis of leading indicators, the institutes expect that the downward trend will continue and do not believe there will be a stabilisation before the middle of 2010," the widely-watched report said.
The institutes publish their outlook twice a year, generally just before the government updates its own forecasts.
Berlin is set to release its own view of the economy on Wednesday and is certain to revise down its current projection of minus 2.25 per cent for 2009.
Finance Minister Peer Steinbrueck said Wednesday the economy was set to shrink by at least five per cent this year with output collapsing by 3.3 per cent in the first quarter.
The International Monetary Fund also released a downbeat assessment of Germany's economic performance Wednesday, saying it would suffer the worst recession of all advanced economies except for Japan.
The institutes - Ifo in Munich, IfW in Kiel, RWI in Essen and IWH in Halle, together with the Austrian think tanks, WIFO and IHS and the Swiss KOF - called on the European Central Bank to slash borrowing costs to stave off the worst effects of the recession.
"Given the depth of the economic slump and the low inflation in the euro area, the European Central Bank should lower its main interest rate to 0.5 percent," the report said.
The ECB's rate currently stands at 1.25 per cent and senior officials at the bank - including Germany's Bundesbank President Axel Weber - have said the rate should not dip below one per cent.