Berlin - The German Government said Friday it had been forced to substantially boost borrowings to meet plans for spurring economic growth amid signs that a sharp contraction has taken hold in Europe's biggest economy.

A late-night marathon meeting of the parliamentary budget committee signed off on the government of Chancellor Angela Merkel's 2009 budget proposals, which includes raising new borrowing to 18.5 billion euros (23 billion dollars).

German Finance Minister Peer Steinbrueck had forecast in the middle of the year that new borrowings would total 10.5 billion euros.

But since then the world financial crisis has pushed the global economy into a dramatic downturn forcing Berlin to join other governments around the world in unveiling a stimulus package aimed at underpinning economic growth and a 500-billion-euro rescue plan to help the nation's financial sector limp through the current upheaval.

Germany key purchasing managers' index (PMI) published Friday underscored how quickly the economic slump was engulfing the nation with both the manufacturing and service sectors' PMI falling to their lowest levels in a decade.

A decline in tax revenue as a result of a contraction in economic activity as well as the government's decision to shelve privatisations including the railway company, Deutsche Bahn AG, is also playing havoc with budget planning.

As a result, draft budget tax revenue projections have been revised downward sharply by about 4.6 billion euros to 244.1 billion euros.

A slew of major indicators and data to be published next week are forecast to confirm the economic deterioration is underway in Germany with business confidence declining again and the long run of falling unemployment in the country coming to an end.

Data released last week showed the German economy tipping into recession with growth shrinking by a bigger-than-forecast 0.5 per cent during the third quarter, on top of a 0.4-per- cent contraction in the second quarter.

The rapidly weakening economic picture combined with a plunge in oil prices is also predicted to result in another a dramatic fall in inflation with preliminary data showing consumer prices coming in at annual 1.6 per cent in November compared to 2.4 per cent in October.

Analysts predict the European Union statistics office to say on Friday that annual inflation in the 15-member eurozone fell from 3.2 per cent in October to 2.7 per cent in November.

The prospect of a tough economic year in 2009 comes as Germany's political parties start to gear up for next year's national election.

Berlin expects the 12 billion-euro-package of stimulus measures agreed to by Merkel's cabinet about two weeks ago to result in a bigger 50-billion-euro boost to consumption and investment. The packages includes steps to encourage investment in energy-efficient buildings and incentives for car buyers.

In addition, the bleak economic outlook means Merkel's government will be struggling to meet its target of balancing its budget possibly by 2011.

Indeed, Berlin is also under pressure from the European Union (EU) to contribute to a planned massive 130-billion-euro package aimed at helping to fire up economic growth in Europe.

In the meantime, the grim news facing the global economy continues to roll in with share markets taking another beating this week on fears of a deep and protracted recession engulfing the world's leading industrial nations.

While Germany's closely watched Ifo business confidence index to be released Monday is tipped fall to 89.0 in November from 90.2 in October, the nation's labour office is predicted to say that the jobs markets stagnated in November. (dpa)