VZCZCXRO7849
OO RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR
DE RUEHRL #0114/01 0291001
ZNR UUUUU ZZH
O 291001Z JAN 09
FM AMEMBASSY BERLIN
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3149
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
RUCNFRG/FRG COLLECTIVE PRIORITY
RUEHDF/AMCONSUL DUSSELDORF PRIORITY 0181
RUEHFT/AMCONSUL FRANKFURT PRIORITY 7839
RUEHAG/AMCONSUL HAMBURG PRIORITY 0255
RUEHLZ/AMCONSUL LEIPZIG PRIORITY 0184
RUEHMZ/AMCONSUL MUNICH PRIORITY 1977
RUEHC/DEPT OF LABOR WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY

UNCLAS SECTION 01 OF 03 BERLIN 000114 
 
SENSITIVE 
 
STATE FOR EEB (NELSON), EEB/OMA (SAKAUE, WHITTINGTON), 
DRL/ILCSR AND EUR/AGS 
LABOR FOR ILAB (BRUMFIELD) 
TREASURY FOR ICN (KOHLER), IMB (MURDEN, MONROE, CARNES) AND 
OASIA 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN ECON ELAB PREL GM
SUBJECT: GERMANY DIVES DEEPER INTO RECESSION 
 
REF: A. BERLIN 1538 
     ¶B. BERLIN 1677 
 
BERLIN 00000114  001.2 OF 003 
 
 
¶1.  (SBU) SUMMARY.  After several years of strong growth and 
falling unemployment, the German economy is on the ropes. 
The German government has repeatedly revised its 2009 growth 
forecasts downward, and the Economics Ministry is now 
projecting that gross domestic product will shrink by 2.25 
percent in 2009.  Exports ) the engine of Germany,s 
economic growth ) are likely to decline by almost 9 percent 
in 2009.  Unemployment will rise to 8.4 percent in 2009, up 
from 7.8 percent in 2008.  Most German economists are 
greeting the government,s second stimulus package with 
relief, but recognize that its full impact will not show up 
until the second half of the year at the earliest.  Also, 
given Germany,s dependence on exports, the recovery will 
depend heavily on what other major countries do to revive 
their economies.  END SUMMARY. 
 
SHARP CONTRACTION IN 2009 
------------------------- 
 
¶2.  (U) Germany is facing its biggest economic downturn since 
World War II.  According to the government,s annual economic 
report released on January 21, the German economy will 
contract by up to 2.25 percent during 2009 ) markedly worse 
than the government,s previous estimate of plus 0.5 percent 
growth.  The report notes that German gross domestic product 
(GDP) increased by 1.3 percent overall in 2008, following 2.5 
percent growth in 2007.  &There is no precedent in post-war 
history for this economic decline that we unfortunately have 
to forecast,8 commented economics minister Michael Glos at 
his January 21 press conference.  (Germany,s most 
significant previous contraction was in 1975, when its 
economy shrank by 0.9 percent in the wake of the oil shock.) 
He made no firm prediction for Germany,s economic 
performance in 2010, indicating the government would produce 
another forecast in April at the earliest.  However, Glos 
said he expected the world economy to be growing again by 
then. 
 
UNEMPLOYMENT ON THE RISE 
------------------------ 
 
¶3.  (U) The recession's other shoe dropped last month when 
German unemployment increased for the first time since 
February 2006, thus ending an unprecedented 34-month labor 
market expansion.  Figures released by the Federal Employment 
Agency on January 8 showed that the number of those seeking 
employment in Germany rose by 18,000 in December.  The change 
was small, but the significance great, since it likely 
heralds many more months of rising unemployment.  Employment 
Agency Chief Frank-Juergen Weise warned that unemployment 
could eventually top 4 million (up from the current 3.1 
million.)  Minister Glos said he expected unemployment to 
climb from 7.8 percent in 2008 to 8.4 percent this year. 
 
¶4.  (SBU) Employers are scrambling to cushion the blow.  The 
chief economist of the national employers, federation, BDA, 
Ottheinrich von Weitershausen, told Econ/Labor Counselor that 
many BDA member companies wanted to keep their employees on 
the payrolls, at least for now.  Dismissals would primarily 
affect temporary workers or those employees working under 
fixed-term contracts, he said.  The federal government,s 
extension of short-time benefits would also help companies to 
keep staff.  Many companies learned their lesson from the 
2003 recession, he said; in the context of skilled worker 
shortage and a shrinking work force, they now try to hold 
onto their workers as long as possible.  However, he saw 
trouble on the horizon, notably among automobile firms and 
their suppliers, which have built up huge overcapacities in 
recent years. 
 
EXPORTS FALL OFF CLIFF 
---------------------- 
 
¶5.  (U) An explanation for the jump in unemployment is not 
 
BERLIN 00000114  002.2 OF 003 
 
 
hard to find.  German exports posted a record 10.6 percent 
fall in November (after declining 0.6 percent from September) 
as orders for cars and machinery (mainstays of the 
manufacturing sector) plummeted.  This is the biggest monthly 
drop since records for a reunified Germany began.  Overall 
2009 exports will likely decline by 9 percent, according to a 
government report. 
 
¶6.  (U) The news shocked the markets.  Unicredit analyst 
Alexander Koch, for instance, called the figures 
&horrible.8  The fact that German companies were in good 
shape and otherwise competitive was irrelevant, he said; the 
collapse in global demand had been devastating.  Koch 
explained that the slowdown in trade weighed massively on 
growth in the fourth quarter of 2008.  The head of foreign 
trade at the Federation of German Chambers of Industry and 
Commerce (DIHK), Axel Nitschke, said the future looked grim, 
especially given the problems besetting the automobile 
industry.  &December,s trade figures (to be released on 
February 9) will be even worse,8 he said.  Germany,s trade 
surplus narrowed from 19.4 billion euro in November 2007 to 
9.7 billion euro in November 2008; this is close to half the 
April level of 18.8 billion euro. 
 
MANUFACTURING IN FREEFALL 
------------------------- 
 
¶7.  (U) Reflecting the decrease in exports, the German 
manufacturing sector is also suffering record declines. 
According to provisional data from the Federal Statistical 
Office, manufacturing turnover fell by an adjusted 6.4 
percent in November 2008 compared with November 2007 
(following a revised 3.2 percent drop in October 2008).  This 
was the steepest decline since 1990.  Car manufacturers and 
the chemical industry suffered in particular.  Chemical Giant 
BASF, carmakers Volkswagen AG and BMW are among companies 
that have suspended production, canceled shifts and shortened 
working hours in recent weeks.  German car sales fell last 
year to the lowest level since 1990. 
 
ANY RAYS OF HOPE? 
----------------- 
 
¶8.  (SBU) Recovery will be slow.  Thomas Szewczyk, the 
Bundesbank,s Berlin Representative, told EMIN that the 
fourth quarter of 2008 and first quarter of 2009 would likely 
mark the trough of the economic downturn.  The Bundesbank saw 
the possibility of some very modest growth beginning in 
April.  This is partly because of &stimulus packages by 
Germany,s trading partners,8 he said.  Though Szewczyk 
expects the modestly positive growth to continue from April 
through the end of the year, overall 2009 GDP growth will 
remain negative due to the depth of the current slump. 
 
¶9. (SBU) The new stimulus plan should help, but most analysts 
believe its full impact will not be felt any time soon (REF 
B).  According to Ulrich Walwei, Deputy Director of the 
Employment Agency,s Institute for Labor Market and 
Vocational Research (IAB), the 50 billion euro package 
approved by Chancellor Merkel's cabinet on January 27 could 
offset the expected contraction by 0.5 to 1.0 percentage 
points, thereby saving up to 250,000 jobs.  He warned, 
however, that the plan's impact on employment might not be 
felt until 2010.  Szewczyk likewise confided to EMIN that the 
Bundesbank would have preferred a &front-loaded8 stimulus 
initiative that focused more on consumption than on 
investment. 
 
¶10.  (SBU) Some are more upbeat.  Anton F. Boerner, President 
of the Federation of German Wholesale and Foreign Trade 
(BGA), said the government's forecast for exports may be 
&too pessimistic.8  BGA is expecting a decline in German 
exports in the range of 3 to 4 percent this year, Boerner 
said.  In his view, President Obama,s stimulus package would 
help the U.S. economy recover more quickly than most 
economies in the EU, which in turn would help boost global 
trade to the benefit of Germany's export-driven economy. 
 
BERLIN 00000114  003.2 OF 003 
 
 
 
COMMENT 
------- 
 
¶11.  (SBU) Many Germans are now seeing the downside of their 
economy's export dependency.  The price of being the "export 
world champion" is that the German economy's fate hinges 
primarily on the revival of economic activity in Germany's 
trading partners.  Focusing on investment rather than 
consumption, Chancellor Merkel's 50 billion euro stimulus 
plan does little to plug the gaping hole in the Germany 
economy left by collapsing global demand.  With the exception 
of some Bundesbank officials and enlightened Bundestag 
members, few German policymakers have an appetite for 
measures to redress the country's enormous net trade surplus. 
 There is therefore disproportionate interest in the stimulus 
plans under consideration in Germany's trading partners, 
including the United States.  END COMMENT. 
Koenig