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German economy shrinks
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November 22, 2001: 3:55 a.m. ET
Europe's biggest economy contracts by 0.1 percent as consumers, corps. stop spending
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LONDON (CNN) - The German economy, Europe's biggest, contracted in the third quarter as consumers and companies cut back on spending amid a global economic slowdown.
Germany, which accounts for a third of the euro zone economy, is looking down the barrel of a recession that could drag down growth across the continent resulting in more jobs losses.
The European Commission slashed its growth forecast for the euro zone on Wednesday, predicting the most serious slowdown since the 1990s recession. The 12-nation single currency bloc is expected to grow by 1.6 percent this year and 1.3 percent next, with Germany trailing with annual growth rates of around 0.7 percent.
Germany, the world's third biggest economy and the second-largest exporter, where one in five jobs depends on exports, tends to suffer more at times of global downturns. Its outlook was worsened by the September 11 terror attacks.
Gross domestic product shrank by 0.1 percent from the second quarter, data from the Federal Statistics Office said. Year-on-year growth halved to 0.3 percent from the previous quarter.
Economists polled by Reuters expected the economy to stall, following stagnation in the second quarter. The same experts expected growth of 0.5 percent from a year ago.
The figures came as no surprise after the Bundesbank, Germany's central bank, signalled earlier this week the economy stagnated for the second consecutive quarter, raising concerns that the economy is on the brink of recession.
German business sentiment data released on Wednesday showed executive confidence fell to an eight year low. Growth in Germany has been sluggish for a year as the world economy cooled but the slowdown worsened after the attacks, which heightened uncertainty among businesses and households and delayed purchasing decisions.
German companies, like communications giant Siemens and truck maker MAN, have slashed thousands of jobs as demand wanes.
Executives and politicians have called on the European Central Bank to trim interest rates to boost demand but that call may fall on deaf ears when the bank meets later Thursday, although no decision is expected.
The ECB has cut rates four time this year but the bank's vice president Christian Noyer said on Monday the bank does not see the need for further interest rate cuts.
Khuram Chaudhry, market strategist at Merrill Lynch, told CNN the ECB should cut interest rates but that may not come until early next year.
Economists said the worst was yet to come, with many predicting a contraction in the final quarter as the aftershocks of the September 11 attacks continued to feed through.
"Now the question is whether we have recession," Ulrich Kater, an economist at DGZ Dekabank, told Reuters. "We have something between a stagnation and a recession but not a typical downturn."
Financial markets widely define as recession two consecutive quarters of contracting GDP. The German finance ministry said the GDP data showed that economic risks had increased but it predicted a turnaround next year.
"Economic weakness should be overcome soon. In 2002 economic forces of buoyancy should win the upper hand," said the ministry. 
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