Germany is showing the first signs of feeling the pain from the euro zone’s debt crisis as its economy shrank in the last three month of 2011.
Gross domestic product grew 3.0 percent for the whole year thanks to strong demand at home and exports.
That was below the previous year’s growth rate of 3.7 percent, which was the fastest since reunification.
But GDP contracted by around 0.25 percent in the fourth quarter according to preliminary Federal Statistics Office data.
Some economists say there is a distinct possibility of Germany slipping into recession.
“Germany cannot isolate itself so easily from tensions within the euro zone. In addition the export sector is facing a difficult period given the fall in global demand,” said Joerg Zeuner, chief economist at VP Bank.
“Another quarter of contraction and thereby a technical recession are distinctly possible. However if there is no further escalation in the euro zone debt crisis the German economy should still grow in 2012, albeit at a moderate 0.5 percent,” he added.
Forward-looking orders data released last Friday also signalled a slump ahead, with orders falling at the fastest pace since the height of the financial crisis nearly three years ago as demand from outside the euro zone plummeted.
Many economists have cut their 2012 growth forecasts. The Bundesbank expects growth of 0.6 percent this year, less than the government’s official forecast of 1.0 percent.