Germany on 'brink of recession'

Germany’s economy shrank by approximately 0.25% in the fourth quarter of last year, raising fears Europe's second largest economy is on the brink of recession.

Analysts blame a decline in foreign sales for the contraction, brought on by a weaker global economy and waning demand from troubled eurozone neighbours.

The growth that did occur was powered by investment and consumer spending, in addition to a boost from steadily falling unemployment.

According to Christian Schulz, an economist at German Berenberg Bank, Germany's gross domestic product is expected to contract again in the first quarter of 2012, he told Bloomberg.

A recession is defined as two consecutive quarters of declining GDP.

"If the euro crisis does not get worse or is finally brought under control after another wave in early 2012, the German economy can rebound nicely from the summer onwards," said Schulz.

"However, we see a 25% chance of the euro crisis remaining out of control longer, or completely spiralling out of control with a series of sovereign and bank defaults. In such a scenario, Germany would enter a major recession."

German growth slowed to 3% in 2011 from 3.7% in 2010, the largest decline since German reunification two decades ago, according to the statistics office.

However, its growth was still twice as fast as the US and the rest of the eurozone.

Last year also saw Germany's public sector deficit fall to just 1% of GDP, down from 4.3% in 2010. That brought the country clearly back below the 3% limit set for eurozone member states.

Analysts blame a decline in foreign sales for the contraction, brought on by a weaker global economy and waning demand from troubled eurozone neighbours.

The growth that did occur was powered by investment and consumer spending, in addition to a boost from steadily falling unemployment.

In December, the Bundesbank forecast German economic growth would slow to 0.6% in 2012, before recovering to 1.8% in 2013.