Germany’s economy shows signs of slowing down

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REPORTING FROM BERLIN -- Has the shine come off Europe’s star economy?

Germany, the continent’s economic engine, saw economic activity slow last quarter and may soon be entering a recession.

On Wednesday, the country’s Federal Statistics Office released figures showing that, while the German economy grew by a healthy 3% overall in 2011, it faltered in the fourth quarter, contracting by an estimated 0.25%.

The report comes on the heels of a forecast from Deutsche Bank that Germany will soon tip into recession, typically defined as two consecutive quarters of negative growth. The economy will likely contract in each of the first two quarters of 2012, the bank predicted, and unemployment will rise slightly above its current 20-year low.

A German recession would spell a difficult year for Europe as a whole. Germany has propped up the European economy not only with its strong performance but also by contributing the largest share of the bailout funds to rescue debt-racked countries such as Greece and Ireland.

Germany has thus far escaped the worst of the euro crisis and enjoyed robust growth as neighboring countries suffer severe recessions and high unemployment.

Chancellor Angela Merkel’s government has resisted calls for decisive monetary action -- such as having Europe’s central bank buy up the bonds of the continent’s struggling countries -- and instead has pushed austerity measures that some economists argue have contributed to a European economic downturn. That in turn could boomerang on Germany.

“With the austerity orgies in Europe, we’re destroying our own market,” Heiner Flassbeck, the German chief economist of the United Nations Conference on Trade and Development, told the daily Suddeutsche Zeitung on Wednesday. “We’re going to suffer a collapse if it’s allowed to continue.”

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-- Aaron Wiener