Germany in recession
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February 27, 2002: 3:40 a.m. ET
Europe's biggest economy entered into a shallow recession in last 6 months of 2001
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FRANKFURT (CNN) - Germany, the economic powerhouse of Europe, was in recession in the second half of 2001.
Gross Domestic Product shrank 0.3 percent in the last three months of 2001 after contracting 0.2 percent in the third quarter, the Federal Statistics Office said on Wednesday.
Publicly traded companies in German have cut about 130,000 jobs in the past year as global demand weakened and have curtailed spending on new equipment. But economists expects a recovery in the second half of this year as the U.S., the world's biggest economy, pulls itself out of a recession.
Year-on-year fourth quarter GDP contracted 0.1 percent, registering its first annual drop since the first quarter of 1996.
A recession in the U.S., one of Germany's biggest trading partners, has dampened demand for exports leading to a rise in unemployment and a fall in consumer spending.
Economists called on the European Central Bank to trim interest rates to stimulate the economy and avert a recession in the euro zone.
"With recession shrouding the economy and German inflation falling to 1.7 percent in February, if the Bundesbank were still holding the monetary reins, then they would have had no hesitation in cutting rates again," economists at Bear Stearns wrote in a note to investors on Monday.
"If the fundamentals would have been right for Germany to cut rates, then they should be right for the ECB as well. The euro zone economy has been at a standstill for the last three quarters and is only a whisker away from recession right now.
And with euro zone inflation heading down to 1 percent by the spring and well below the ECB's 2.0 percent target, it means that ECB policy is too tight and needs to be loosened again," said the investment bank.
But economists also acknowledged that there are signs that the economy will improve by the second half of this year. Monday's release of German business confidence numbers rose for the third straight month in January, a sign that Europe's largest economy may be headed for recovery.
"The worst should be over now," Andreas Scheueurle, an economist at DGZ-Dekabank, told Reuters. " We may get a slightly positive first quarter but the recovery will gain dynamism only in the second half of the year."
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