Shockwaves as Germany goes into recession

Gross domestic product in Europe's largest economy fell 0.5% in the third quarter, having dropped 0.4% in the previous three months.

While Germany was the first Group of Seven nation to officially enter recession, defined as two consecutive quarters of economic decline, other countries including Britain, the United States, France, Japan and Italy are expected to follow suit.

The Organisation for Economic Co-operation and Development today cut its forecast for global growth next year for the second time this year.

It said the economy of its 30 members will contract 0.3% in 2009 after expanding 1.4% this year.

"The OECD as a whole is currently in recession," said its director of policy studies Jorgen Elmeskov in Paris.

The German slump is the deepest since 1996 and economists said it could get worse.

"If you think today's numbers are already bad, just wait for the next quarter," said ING economist Carsten Brezeski in Brussels. "The headwinds of the financial crisis and the global economic slowdown are blowing right in the face of the German economy."

British exporters have already been feeling the pain of Germany's economic troubles and the Bank of England yesterday warned Britain faces a deep recession.

Germany is our biggest global market after the US, buying about £31 billion of British goods and services a year.

The euro sank against a host of currencies, down 0.05 cents against the US dollar to $1.2545, but was still up 1.19p against the ever-weakening pound to a record high of 84.39p.

Stefan Bielmeier of Deutsche Bank in Frankfurt said Germany faces "a long, drawn-out recession" and forecast the economy will shrink 1.5% next year, the worst since after World War Two.

"Unfortunately, we don't see any respite any time soon," he said. "Where should the growth come from?"

Faced by the sharp declines in their economies, governments are increasingly moving towards making big fiscal spending plans to attempt to restart demand.

Chancellor Alistair Darling is expected to unveil a host of tax breaks in the Pre-Budget Report a week on Monday while Barack Obama is pushing for an urgent package to help American carmakers.

Germany's economy was hit by a fall in exports with orders down by 11.4% between August and September.