Germany's central bank has warned that the country's economic recovery is fragile and that the nation is still dangerously close to Europe's limit on budget deficits.

The Bundesbank estimated in its monthly report on Monday that the economy grew by 0.25% between April and June against the previous three months.

But the bank also suggested that Germany's budget deficit this year would reach 2.7% - the same level as last year and above the government's target of 2.5%.

The figure is edging nearer to the European Union's 3% limit on budget deficit, designed to protect the stability of the Euro.

Shaky recovery

Germany is the largest economy in Europe but teetered on recession at the end of 2001.

It narrowly escaped a warning from the European Union in February, when its budget deficit came close to the 3% cap.

As long as the trend lacks strength and dynamism, the economy remains vulnerable to disruption from new burdens

Bundesbank

The Bundesbank said on Monday that "the German economy still has not moved beyond the opening phase of a cyclical recovery".

It said strikes by manufacturing workers had hampered growth while a rise in imports and exports had countered some of the slowdown.

Tough electoral climate

The government is now forecasting economic growth of 0.75% for the current year - against a total of 0.6% in 2001 - and a more robust growth of 2.5% in 2003.

However, the Bundesbank warned that: "As long as the trend lacks strength and dynamism, the economy remains vulnerable to disruption from new burdens."

Not least among the new threats are the floods that have engulfed some parts of Europe.

The German government said on Friday it wanted to discuss the effect of the floods on its public accounts with the European Commission.

The unsettled climate has created difficult background for chancellor Gerhard Schroeder in the upcoming national elections, scheduled for 22 September.