Pain on the way for EU powerhouse

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The Independent Online

The main engine of European growth crunched into reverse inthe final quarter of last year as Germany's economy shrank by 0.25 per cent, official figures show.

The data are the starkest evidence yet of the impact ofthe sovereign debt crisis on the 17-member single-currency bloc, which is plunging towards recession.

Despite the poor end to the year, Germany is weathering the storm better than its peers and still managed 3 per cent growth overall in 2011, while the UK is expecting to record anaemic growth of just 0.9 per cent. Germans splashed out on Volkswagens and BMWs to boost private consumption while the country's unemployment fell in December to the lowest level since reunification 20 years ago.

But Germany's chief number-cruncher, Roderich Egeler, signalled difficult times ahead as he warned that growth in 2011 "took place primarily in the first half of the year".

Forward-looking orders data also signalled a slump on the way, with orders falling at the fastest pace since the height of the financial crisis nearly three years ago.