Market woes hit German economy

By Paul Carrel

BERLIN (Reuters) - An end to the export boom that has long underpinned German prosperity leaves the country's economy, despite its relatively sound fundamentals, facing the prospect of several quarters of low or negative growth.

As the world's largest exporter of goods, Germany is exposed to its trading partners' woes and faces a sharp slowdown in export growth. The economy is probably already in recession and shows little sign of picking up soon.

"Whatever happens to our trading partners will happen to Germany, with just a little lag," said Bank of America economist Holger Schmieding.

Citigroup economist Juergen Michels said weakening demand from both within the euro zone and beyond, combined with the lagged impact of the euro's EUR= recent strength, would contribute to a "likely massive slowdown in export activity".

He expected export growth of 4.7 percent in 2008 after some 8 percent in 2007, slowing further to 2 percent at most in 2009.

As Europe's biggest economy, Germany's fortunes are closely tied its neighbours'. Despite profiting from growth in emerging markets, the Middle East and eastern Europe, Germany has been unable to 'decouple' from the slowdown in big Western economies.

After growing by 1.3 percent in the first quarter, the economy contracted by 0.5 percent in the April-June period. The Finance Ministry said on Friday the third quarter likely saw another contraction, which would put Germany in recession.

Finance Minister Peer Steinbrueck this week massaged down expectations for growth next year.