Germany's leading economic think tanks said today Europe's largest economy could be in recession as the country's second-largest bank posted a record loss and officials said unemployment would rise more this month.
Economists said business surveys indicated growth would remain weak for the first six months of 2003 with the threat of war in Iraq weighing on sentiment and that no upturn was likely before the second half of the year.
"The economy is going through a wobbly period. I would no longer rule out a technical recession," Mr Udo Ludwig, an economist at the Halle-based IWH institute, told Reuters.
A technical recession is defined as two consecutive quarters of economic contraction.
The country's second-largest bank HVB Group reported a record loss today and said it would scrap its dividend for the first time in almost 60 years after the longest bear-run in 70 years triggered a landslide of bad loans, stock writedowns and restructuring costs.
Germany has been struggling to avoid falling back into the slight recession it suffered in 2001 as a global economic downturn has prompted companies to cut costs and jobs.
Unemployment has been propelled to a five-year high, stifling domestic consumption. The problems are compounded by the threat of war that has dented consumer and investor confidence.
German Economy Minister Mr Wolfgang Clement offered little comfort, saying while conditions were "worrying" a rise in borrowing to stimulate the economy was not on the cards.
Germany is under pressure to rein in spending after its budget deficit broke European Union regulations last year, but Mr Clement said that if things got worse he would allow the budget slippage that occurs automatically when an economy slows as tax revenues fall and social welfare spending rises.
Finance Minister Mr Hans Eichel said this week the country's budget deficit would likely remain above the EU's three-per cent of gross-domestic-product limit this year if growth was lower than the government's official forecast of 1 per cent.