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By Andreas Moeser
BERLIN, April 29 (Reuters) - The German government slashed its forecast for the economy on Wednesday, saying a collapse in exports would lead to a record 6 percent contraction in gross domestic product (GDP) this year and only meagre growth in 2010.
Three months ago, the government was forecasting GDP to shrink by just 2.25 percent in 2009.
Since then, Germany has seen foreign demand for its products dry up as consumers around the globe rein in spending in the face of the worst economic crisis in 80 years.
Berlin now expects exports, which have been the prime driver of growth in Europe's largest economy in recent years, to plunge 18.8 percent in 2009.
The government said that drop would be responsible for three-quarters of the contraction this year, a result which would easily be Germany's strongest fall in output since World War Two. [ID:nBAF001664]
"The economic blow that we're expecting this year is first and foremost a result of the massive global economic downturn and the huge drop-off in exports connected to this," Economy Minister Karl-Theodor zu Guttenberg said.
"It would not be helpful to play down the impact of the economic crisis on production, employment and incomes."
The new estimate brings the government in line with other independent forecasters. Last week a group of leading economic institutes also forecast a 2009 contraction of 6.0 percent for Germany. [ID:nLN370113]
New forecasts unveiled by the International Monetary Fund (IMF) last week called for a German GDP decline of 5.6 percent this year, worse than any other advanced economy except Japan's, which the IMF expects to shrink by 6.2 percent. [ID:nWEQ000904]
The coalition government of Chancellor Angela Merkel has unveiled two successive stimulus packages worth an estimated 81 billion euros ($106.9 billion) to shield the economy from the worst of the downturn.
But measures to shore up the domestic economy, which include billions of euros in infrastructure investment, modest tax relief and incentives to buy new cars, cannot protect German firms from weaker demand in key trading partners like France, the United States and China.
Germany's VDMA engineering association said on Wednesday that orders had plunged 42 percent in the January-March period, with domestic orders down 39 percent and foreign orders down 43 percent. [ID:nBAF001663]
German engineering giant Siemens
Guttenberg told reporters there were signs the economy may be reaching its low-point, citing stronger-than-expected results from some U.S. banks and positive business and analyst sentiment indicators from Germany's Ifo and ZEW economic institutes.
"These are all signs for a possible bottoming out," he said.
But the government expects a sharp rise in the unemployment total next year, to an average of 4.62 million, and only meagre GDP growth of 0.5 percent.
Job insecurity is expected to weigh on private consumption, which Berlin expects to drop by 0.1 percent this year and by 0.3 percent in 2010.
Capital spending by companies is expected to drop by 8.1 perrcent this year, fuelled by a 17 percent collapse in equipment investment. (Writing by Noah Barkin; Additional reporting by Paul Carrel and Dave Graham)