Germany in recession after 0.3% fall in GDP

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The German economy shrank in the final quarter of last year it emerged yesterday, confirming that Europe's former powerhouse is in recession.

The 0.3 per cent contraction in growth followed a 0.2 per cent fall in the third quarter, fulfilling the commonly accepted view of a recession as two consecutive falls in GDP. The economy recorded no growth in the second quarter.

On an annual basis the economy contracted by 0.1 per cent, its first year-on-year fall for five years. The decline followed recent figures from France which showed it also shrank in the final quarter of last year, albeit by a smaller 0.1 per cent.

The gloomy figures prompted speculation the European Central Bank would cut interest rates. The chief economist of a leading German economic think-tank yesterday said it was not doing enough. "The ECB is not doing everything it could to help boost growth. It's doing something, but not enough," Gustav Horn, of the DIW institute, said.

Economists said the drop would not trigger any reaction from the ECB, which is now looking ahead to an expected upswing later this year.

"I don't think that the data will have any implications for ECB monetary policy because they are backward-looking," said Ulla Kochwasser, an economist at IBJ Deutschland.

There was further bad news from an upward revision to its 2001 deficit ratio to 2.7 per cent from 2.6 per cent. Germany recently came close to being reprimanded by the European Commission for threatening to breach the ceiling of 3 per cent.