Policymakers are looking at ways of stoking up the German economy

The economy grew by 0.9% last year, down from 1.6% in 2004, the Federal Statistical Office said.

At the same time, Germany's budget deficit topped European Union limits for the fourth year in a row.

The data underlines that while Europe's largest economy has shown recent signs of recovery, progress remains slow.

"All in all the German economy developed only in a cautiously positive direction," said Johann Hahlen, president of the statistics office.

"Above all, the situation in the labour market and the weak domestic demand remained problematic," he added.

Changing picture

Germany is facing a number of problems, not least the fact that policymakers are wrestling with how to reform and reinvigorate the economy.

Analysts have said that the labour market needs urgent reform, as well as the social security system.

Germany is not alone, and France and Italy also are trying to inject new life into their economies. On Thursday, France warned that any attempts to rein in its budget deficit may risk slowing the economy.

Helping to keep German growth ticking over has been foreign demand and 2005 saw a 6.2% increase in exports, while imports rose by 5%.

The statistical office said that the budget deficit reached 78bn euros (�44bn; $95bn) in 2005, or about 3.5% of gross domestic product (GDP).

The European Union wants member states of the euro to keep their budget deficits to below 3% of GDP.