Germany slides into recession

Germany, Europe's largest economy, has slipped into recession for the second time in two years, official figures confirmed today.

The German economy shrank 0.1% in the second quarter, after contracting 0.2% in the first three months of the year, meeting the technical definition of recession - two consecutive months of contraction.

With Italy also in recession, growth has stalled in the two countries accounting for around half of the eurozone economy. The latest data will put further pressure on the European Central Bank to lower interest rates to boost growth at a time when recovery in the US, the world's traditional economic engine, is still shaky.

The federal statistics office said that contraction was due to a decline in exports which could not be offset by slightly stronger domestic consumption.

"The decline in output in the second quarter was characterised by a decline in exports, which was stronger than the decline in imports," the statistics office said in a statement.

Germany has been hit by the strengthening of the euro, dampening exports, a mainstay of its economy. The euro has gained more than 7% against the dollar this year, hammering exports as German goods become more expensive in foreign markets.

There have been signs of a pick-up in business confidence in recent surveys, while the manufacturing and service sectors have also bounced off their recent lows. But analysts caution against overoptimistic expectations.

"The trouble is that the survey evidence, while no longer pointing to recession, does not point to a rebound either," HSBC said in a briefing note.

"Germany is not alone in seeing GDP down in the second quarter. Italian figures, already released, showed the same contraction as Germany, while there is a good chance that France will also have experienced its second fall in three quarters. Spain remains the star, with GDP apparently rising 0.6% in the quarter."