Page last updated at 11:15 GMT, Tuesday, 14 October 2008 12:15 UK

Germany 'on brink of recession'

German car production line
Germany's exporters are being hit by the slowdown

Germany's economy is on the brink of recession and will only expand by 0.2% in 2009, the country's leading economic think tanks have warned.

They said that the country's export sector could be hit just as hard as the financial sector.

In a twice-yearly report, the institutes added that if the banking sector stabilises, the economy could begin to recover from mid-2009.

A separate survey indicated investor confidence has also deteriorated.

The confidence index, compiled by the ZEW research institute, stood at minus 63 points down from minus 41 points in September.

'Negative shocks'

The report compiled by four institutes - Ifo in Munich, IfW in Kiel, RWI in Essen and IWH in Halle - stuck to its original forecast of 1.8% growth for 2008, down from 2.5% in 2007.

However, it predicted growth of just 0.2% in 2009 and added that, in a worst-case scenario, the economy could shrink by 0.8%.

"The German economy finds itself in autumn 2008 on the brink of a recession," the report said.

"A number of negative shocks from outside Germany had already clouded the economic climate. But the dramatic developments on the financial have led to an even sharper deterioration in prospects, " it added.

On Thursday, German is expected to cut its official growth forecasts.

The report from the institutes praised Chancellor Angela Merkel's multi-billion euro bank rescue plan, which is part of a joint effort by European countries to stem the financial crisis.

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