Germany drifted closer to all-out recession yesterday, with official figures showing the economy contracting slightly in the third quarter. The Federal Statistics Office said gross domestic product (GDP) shrank by 0.1 per cent from July to September. This follows zero growth in the second quarter and brings Germany to the brink of recession, defined as two consecutive quarters of economic shrinkage.

Leading German economists disagreed over interpretation of the figures yesterday, with some saying the negative growth was still too small to be significant.

But Mr Klaus Friedrich, Dresdner Bank chief economist, said second-quarter GDP shrank by 0.03 per cent before being rounded up. With no sign that the fourth quarter will be better, he said Germany was in recession.

The Federal Finance Ministry in Berlin said the economy grew by 0.3 per cent year-on-year and the German economy would turn a corner early next year. "Economic weakness should be overcome soon. . . buoyant economic forces should win the upper hand in 2002," it said in a statement.

The ministry blamed the negative growth on higher food and energy prices and the continued effects of foot-and-mouth disease.

Germany accounts for more than one-third of total euro-zone exports, leaving it most exposed to the US economic slowdown.

German business confidence slumped to its lowest level in eight years last month and there are nearly four million unemployed.

The Chancellor, Mr Gerhard Schr÷der has resisted any measures to stimulate the economy.

The European Commission said on Wednesday that the German slump would drag European growth to a nine-year low next year.