Merkel sees weaker growth but no major slump

BERLIN (Reuters) - The global financial crisis will hit the German economy but not lead to a major, lasting slump, German Chancellor Angela Merkel said on Wednesday.

Speaking in the Bundestag, the lower house of parliament, Merkel said Germany was strong but faced a difficult period.

“We have to expect a weakening of growth,” she said. Merkel added, however, that a sharp, sustained economic downturn was not on the horizon.

Germany is expected to cut its growth forecast for 2009 to about 0.2 percent on Thursday, down from 1.2 percent previously, and Finance Minister Peer Steinbrueck has said Europe’s largest economy could slip into recession.

In her speech to parliament, Merkel defended her cabinet’s approval of a bank rescue worth up to 500 billion euros ($683.1 billion), which includes as much as 400 billion euros in guarantees to help banks get over a liquidity squeeze and up to 100 billion euros in state funds, mainly to recapitalize banks.

Merkel said Germany would push for new international rules for the financial system, reiterating her demand that the International Monetary Fund (IMF) take on a bigger supervisory role.

She said Germany would set up a new expert group, which would assess the financial market system.

Merkel’s announcement that former Bundesbank president Hans Tietmeyer was to head the group drew loud jeers from the opposition far-left Left Party, which has sharply criticized Germany’s banking elite in past weeks.

Reporting by Kerstin Gehmlich and Noah Barkin, editing by Mark Trevelyan