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Thursday, 22 November, 2001, 16:50 GMT
Germany's economy shrinks
The BASF plant in Ludwigshafen
German industry has stagnated this year
Germany's economy has shrunk slightly in the July to September quarter, sparking fears of an all-out recession.

The country's economic output, or GDP, contracted by 0.1% in the quarter, the Federal Statistics Office said.


In 2002 economic forces of buoyancy should win the upper hand

Finance ministry statement
The figure, which was worse than analysts had predicted, followed a stagnant performance in the previous quarter, leaving Germany within a hair's breadth of a technical recession - defined as two successive quarters of negative growth.

On an annual basis, GDP rose 0.3% in the July to September period, the weakest performance since early 1997.

The release of the data followed a report revealing a drop in German business sentiment, and warnings from Finance Minister Hans Eichel that economic activity would remain subdued until next spring.

Risks mount

Germany's finance ministry said the data indicated that economic risks had increased.

"However, economic weakness should be overcome soon," the ministry said in a statement.

"In 2002 economic forces of buoyancy should win the upper hand."

The ministry pinned the blame for the contraction on increased energy prices and food costs.

Opinion is still mixed on whether Germany will topple into a prolonged slump.

Some analysts forecast a mild rebound later in the year, driven largely by consumer spending.

"I think private consumption will be stronger in [the fourth quarter] because consumers will move forward purchasing ahead of the euro changeover," said Ulla Kochwasser from IBJ Deutschland.

Troubles spread

Germany's stagnation has worrying implications for the whole of Europe.

The German economy accounts for more than one-third of total eurozone output, and the latest figures indicate that it is performing much worse than the wider European average.

While countries such as France and Italy have so far avoided the worst effects of the post-attacks slowdown, Germany's possible slide into recession is likely to drag the whole region down.

Germany's economic woes have heightened calls for action from the German government.

But Chancellor Gerhard Schroeder has stoutly resisted demands for an economic stimulus package.

Many other governments - notably the US - have launched tax and spending packages in an effort to encourage growth.

 WATCH/LISTEN
 ON THIS STORY
The BBC's Mark Gregory
"Many experts say Germany is already in recession"
The BBC's Patrick Bartlett
reports on the German building workers being forced to work abroad due to the economic downturn
See also:

22 Nov 01 | Business
Rich countries on the brink
22 Nov 01 | Business
UK economic growth trimmed
21 Nov 01 | Business
Pessimism worsens among German firms
08 Nov 01 | Business
ECB takes bold action
23 Oct 01 | Business
Germany 'on the brink of recession'
16 Oct 01 | Business
Jobs woe for German economy
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