The German economy is rebounding, but that won't stop an estimated 640,000 people from losing their jobs by the end of next year. According to the federal government, the coming year should see growth of 1.2 percent, following a contraction of 5 percent in 2009.

Speaking in Berlin on Friday, Economics and Technology Minster Karl-Theodor zu Guttenberg said that the "chances are good that the upswing can strengthen next year." Berlin had previously projected a more dramatic 6 percent slump this year and a meager 0.5 percent growth in 2010.

According to government estimates, the number of people set to lose their jobs this year is around 190,000, which would bring the total to almost 3.5 million. However, that figure is set to rise in 2010, when government aid runs out for many businesses and production goes down. Estimates put the number of people out of work next year at 4.1 million.

Guttenberg did say that the odds of the jobless rate going above five million were "completely unlikely."

CDU and FDP hammer out tax cuts

The improved economic outlook for Europe's largest economy comes as Chancellor Angela Merkel's Christian Democrats (CDU) continue to work out the details of tax cuts with the Free Democrats (FDP) following elections last month.

The FDP has called for 35 billion euros ($52 billion) in tax cuts, but Merkel, ever aware that the country has far from recovered from the steepest downturn in 60 years, is wary. Media reports on Friday suggested the cuts would more likely be somewhere in the neighborhood of 20 billion euros over four years.

The forecast rise in unemployment combined with the modest economic growth outlook means inflationary pressures in Germany are likely to remain weak. Annual consumer prices will average minus 0.3 percent in 2009, edging up to 0.9 percent in 2010, the government forecasts.

mrm/dpa/AP/AFP
Editor: Rob Mudge