The German economy is officially in recession, according to official figures which have confirmed two successive quarters of contraction.

Gross domestic product (GDP) shrank 0.3% in the last three months of 2001, following a 0.2% fall between July and September.

The numbers, which were worse than many economists had expected, also showed that in December Germany's economy was 0.1% smaller than it had been in December 2000.

On a seasonally adjusted basis, growth was zero for 2001, the Federal Statistics Office said.

Budget worries

The Statistics Office also said that the budget deficit in 2001 was 2.7% of GDP, up from previous estimates of 2.6% and edging dangerously close to the 3% ceiling imposed by eurozone rules.

Germany was recently almost penalised by the European Commission, amid fears that it was overspending, and possibly endangering the stability of the euro.

The news could make life even more difficult for Chancellor Gerhard Schroeder, facing national elections on 22 September this year.

The state of the economy is rapidly becoming a key issue, thanks in the main to a jobless roll that is nearing 4 million.

Two down

Economists differ on precisely what constitutes a recession.

But on the conventional wisdom definition of two successive quarters of contraction, Germany is now the second of the world's big three economies to succumb.

Japan's recession is already well-established.

And although on its own official, different definition the US has been in the same boat since March, its own GDP figures due out on Thursday are likely to confirm a second quarter of contraction.

Recent data indicates that US consumers are tiring of their spending spree in the last couple of months of 2001, as the realities of higher unemployment and greater insecurity hit home.

Light in sight

The German numbers may make uncomfortable reading, but there are indications that the worst may be over.

GDP growth or otherwise is a lagging indicator, whereas other more forward-looking data is more promising.

The closely-watched Ifo business confidence survey, released earlier this week, rose for the fourth month in a row to a six-month high.

And a marginal gain in business confidence could be found across the border in France as well, with the core confidence index creeping up to 92 from 91 in January.

The same survey, conducted by the statistics office INSEE, produced an even more marked improvement in the "general outlook" indicator, which recovered to -30 from -38 in January.