The head of Germany's central bank said the country's economy might see no growth this year.

We want to allow those who have not been honest a way back into the system Chancellor Schroeder

Ernst Welteke, president of the Bundesbank, said he expected Europe's biggest economy to grow by between zero and 0.5%.

"The consumer and investor confidence situation in Germany can only be described as bad," he said.

But the government is hoping to provide an investment boost by offering lower tax rates to Germans who move funds from abroad back into the country.

Poor performance

Mr Welteke, who is also on the governing council of the European Central Bank, said: "Germany finds itself in a confidence trough, with weak growth in the third quarter supported mainly by orders and automobile sales."

But he insisted the danger of deflation in the country was still very remote.

Speaking at the bank's end of year news conference, Mr Welteke said again that the European Central Bank's current monetary policy setting "leaves room for manoeuvre" for further cuts in interest rates.

Last year, German gross domestic product (GDP) expanded by just 0.6% percent, making it one of the worst performing economies in the euro area.

Dishonest gains

The economy could get a lift from a tax anmesty which Chancellor Gerhard Schroeder plans to introduce.

He said his government wants to bring in a 25% "withholding tax" on bank savings and offer an amnesty to people who repatriate illegal foreign funds.

"We want to allow those who have not been honest a way back into the system."

He said that banks would have to make "control reports" to tax authorities as part of the planned changes.

About-turn

Funds repatriated in 2003 would be taxed at 25% in 2003 and 35% in the first half of 2004.

Germany currently taxes income from savings above a certain threshold at the level of personal income tax, which can be as high as 48.5%.

Mr Schroeder said the amnesty could see more than 100bn euros (�64bn; $102bn) returned to the country.

The government had originally floated the idea of a tax amnesty, modelled on a similar scheme in Italy, earlier this year.

But it was abandoned with finance minister Hans Eichel saying it would be unfair to honest taxpayers.