The German economy – the largest in Europe, accounting for one-third of eurozone output – is standing on the edge of recession, according to quarterly figures from the Bundesbank.

Germany’s central bank revealed that in Q3 the nation’s economy “only just matched the levels recorded” in the second quarter, up only 0.25% year-on-year.

Should these figures be confirmed by official government statistics on Thursday – and some economists think these will come out worse – it would mean the German economy has stayed flat for two quarters in succession. The technical definition of recession is two consecutive quarters of contraction.

Explaining the downturn, the Bundesbank pointed to the September 11 attacks on the US, since when many large German multinationals such as Siemens have posted weak results and made tens of thousands of redundancies. Business confidence has plummeted, while an unemployment rate of 9% has dented consumers’ faith in the future.

The German government led by chancellor Gerhard Schröder has so far staunchly resisted the sort of economic stimulus packages undertaken in the US, though with elections due next autumn this may change.

On a more positive note, the downturn pushed annual consumer inflation down to 2% in October, making it easier for the European Central Bank to cut eurozone interest rates.

News source: BBC Online Business News (UK)