Four months from a general election, Chancellor Angela Merkel's troubles mounted today with the disclosure that the German economy has now been contracting, quarter by quarter, for a full year, according to dpa. The slump to the end of March, of 3.8 per cent compared to gross domestic product (GDP) in the final quarter of last year, is the worst quarterly slide since Germany began rebuilding itself from the ruins of the Second World War. Nervous Merkel acolytes in her Christian Democratic Union (CDU) have been urging her in recent weeks to promise the nation tax cuts if she is re-elected. But Merkel, who came to power in 2005 with a philosophical commitment to curing budget deficits, has resisted. Merkel is still Germany's most popular politician, two-weekly surveys by ZDF television show. Her CDU can count on 39 per cent of voters, roughly the vote share it won in 2005 when Merkel had to enter an awkward coalition with her longtime rivals, the Social Democrats. Merkel has largely avoided blame for the recession, which Germans perceive as an unavoidable evil washing over their country from outside. Recent data has shown that Germany exported goods worth 199.3 billion euros (270 billion dollars) in the first quarter, down 21 per cent from one year ago. Statisticians confirmed Friday that a decline in exports, and in business investment which partly depends on export receipts, were the causes of the GDP slump, with private and government demand actually rising. That underlines one of the paradoxes of a slump, German-style. In the midst of the recession, private consumption has held up remarkably well, and home prices have held steady. The real-estate slump that has shocked the United States and Spain has passed Germany by. At a conference of realtors this week in the northern city of Hamburg, Jens-Ulrich Kiessling, president of the IVD realtor association, said estate agents reported demand for land and buildings was strong throughout the country. Kiessling attributed this to a German instinct to buy now if there is a risk that one's savings might soon be wiped out. "People are worried that inflation will set in. They are also dumping dodgy investments. They want to invest in something tangible," he said, adding that the middle classes and retirees still had solid incomes and cash reserves to invest.
