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Germany's economy worst since 1993

A probe has been launched to see whether Schroeder lied to voters
A probe has been launched to see whether Schroeder lied to voters

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BERLIN, Germany -- German economic growth slowed to its lowest rate for nearly a decade latest figures show, prompting fears that Europe's largest economy is heading for a recession.

The German economy grew by just 0.2 percent in 2002, the worst performance since 1993 when there was a contraction of 1.1 percent, official data reveals.

While the German Economy Ministry said there is "no reason for pessimism," a dim outlook for the first quarter of 2003 has economists fearing recession -- defined as negative growth in two successive quarters -- is inevitable.

"Germany is in trouble and there is a good chance that the economy has already slipped halfway back into double dip recession," Bear Stearns said in a note to its investors.

Declining growth, lower tax revenue and higher outlays for jobless benefits helped cause a federal deficit of about $77 billion last year, and at 3.7 percent of gross domestic product, the deficit was well above the 3-percent limit set by the European Union, the report said.

As the government sought to play down the figures, a German parliamentary committee opened a formal investigation into whether Chancellor Gerhard Schroeder and Finance Minister Hans Eichel, among others, intentionally concealed budget problems before September's election.

Eichel has denied the allegations saying the data became available after the election.

But thousands of angry Germans don't believe it. Saying Schroeder "wanted the shirts from their backs," many have sent old shirts to his office.

The head of Deutsche Bank, Germany's biggest bank, Josef Ackermann, called on the government to step up economic reforms to prevent it slipping behind its peers economically.

"For the millions of unemployed, for the many people whose careers are acutely endangered, for young people without prospects, the situation today is already critical," Ackermann said.

He also said he thought it was crucial that Germany put its affairs in order for the sake of Europe.

"Europe needs a dynamic Germany. Who else, if not Germany -- in concert with France -- should take on the leading role?"

Indeed, Germany's ailing economy has severe consequences for the other members of the eurozone as it accounts for about 30 percent of gross domestic product in the 12 countries that use the euro currency.

The European Commission launched disciplinary proceedings against Germany last week for breaching the EU's 3-percent limit in 2002.

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