German economy may recover by fall

German Economy and Technology Minister Karl-Theodor zu Guttenberg follows the debate at the German lower house of parliament Bundestag in Berlin February 13, 2009.

BERLIN (Reuters) - The German economy should begin to recover at the latest by the autumn and the upswing will be reinforced by the government's stimulus package, Economy Minister Karl-Theodor zu Guttenberg was quoted saying on Sunday.

"Let's not try to fool anyone: we're stuck in a very difficult crisis," he told Bild newspaper in an interview to be published in its Monday edition after taking office last week to replace Michael Glos, who resigned.

"But we've put together a very good stimulus package. And thanks in part to that we expect to see an upturn again by the autumn at the latest," Guttenberg said.

The economy shrank at record pace in the last quarter of 2008, as a manufacturing downturn hit exports and dented investment in Europe's biggest economy.

Gross domestic product contracted by 2.1 percent quarter-on-quarter in the final three months, its worst quarterly performance since reunification. On Friday parliament approved a new 50 billion euro economic stimulus package.

Guttenberg, a leader in the Bavarian Christian Social Union (CSU) that has long pushed hard for tax cuts, said he will fight for tax reform, and lower taxes.

"I believe we need a comprehensive tax reform from 2010," he said. "I'm letting a few diverse models be checked out now."

Guttenberg said he was especially eager to tackle the issue of "cold progression" -- a multi-billion euro source of tax revenues for the state created over the years because Germany does not adjust tax brackets for inflation.

"Additional billions of euros in tax revenues end up in the state's lap with no justification," Guttenberg said.

(Writing by Erik Kirschbaum; Editing by Hans Peters)