GERMANY:EUROPE'S ECONOMIC driver will struggle to stay out of recession next year, according to new figures presented in Berlin yesterday, as the financial crisis hits the vital exports market.

The German government has officially rounded down its economic growth forecast for 2009 to just 0.2 per cent, down from 1.2 per cent earlier this year.

The economy is expected to grow 1.7 per cent this year.

Economics minister Michael Glos said there was "no reason to paint things black", and there was a chance of a quick recovery thanks to the falling price of oil.

He said a widespread credit shortage "was nowhere to be seen", and he expected "no further disruptions" to the economy.

The new data came as no surprise after a similar gloomy forecast from Germany's leading economic institutes earlier this week.

They said Germany had been "hit particularly hard by the international economic weakness because of a drop in demand for investment goods which play a considerable role in Germany's export market".

However, Mr Glos surprised fellow politicians with a call for tax cuts and other measures to take the edge off the downturn.

"We urgently need to reduce the burden of taxes and contributions on the citizens," said Mr Glos, calling for a medium-term "moratorium" on anything that reduces take-home pay.

The suggestion from Mr Glos, a member of the Bavarian Christian Social Union, has caused waves in Berlin's grand coalition. This week's bank rescue plan forced Social Democrat finance minister Peer Steinbrück to abandon his ambitious plan to present a balanced budget by 2011. He will not take kindly to any recommendations from a rival ministry that could curtail his tax take.

Christian Democrat leader chancellor Angela Merkel also rules out any wide-ranging economic measures, and sent out one of her senior deputies, Norbert Röttgen, to dismiss the plan yesterday.

"The government cannot break out in panic because of a temporary weakening of economic growth," he said.