Business and Finance news

Bundesbank President Axel Weber said the German economy, Europe’s largest, probably contracted 3 percent in the first quarter from the fourth, which would be the most on record.

“I expect the first quarter to still show a marked drop” in gross domestic product, “even bigger than the last quarter of 2008,” when the economy shrank 2.1 percent, Weber said at a press conference in Washington today. The first-quarter reading will probably have “a negative 3 in front of the comma,” he said. The data are due for release next month.

Such a contraction would be the worst in Germany since quarterly records began in 1970. Weber said the first quarter would drag down 2009 GDP. Germany’s leading economic institutes this week predicted the economy will shrink by 6 percent this year, the most since World War II.

Weber noted a “certain stabilization” in business confidence in Germany. Sentiment as measured by the Ifo institute rebounded more than economists forecast from a 26-year low this month as interest-rate cuts and government stimulus packages boosted expectations that the recession will ease later in 2009.

“In the past, leading indicators like the Ifo have always been reason for confidence that a recovery in the real economy will follow with a time lag of usually around six months,” Weber said. “That’s also our current forecast. Maybe we’ll see positive growth rates in 2010 during the year. In 2010, the worst should be over.”

‘Significant Effects’

The European Central Bank has signaled it will cut its benchmark rate to a new record low next month instant payday loans completely online. Chancellor Angela Merkel’s coalition plans to spend about 82 billion euros ($107 billion) to stimulate growth, including tax breaks and investment in infrastructure.

“Overall I believe that it’s currently not necessary to discuss” additional stimulus packages, Weber said. “We need to implement what has already been decided. I expect to see significant effects during the course of the year but we need to be patient.”

Germany’s inflation rate will probably turn negative next month, said Weber, who also sits on the ECB’s Governing Council.

“Inflation rates are currently very low, I’m not ruling out negative rates in Germany,” he said. “In May I even expect that, after summer 2008 showed historic highs in oil prices. Afterwards, I expect a slight acceleration in inflation.”

German inflation slowed to 0.4 percent in March, the lowest level in almost ten years, after oil prices dropped 65 percent from a record $147 last July. Weber said he doesn’t see a tisk of deflation.

“I see disinflation with negative inflation rates,” he said. “At the moment it’s a welcome support for consumers’ purchasing power.”

Source