Germany and France toppled into the start of a possible recession today as they both reported that output shrank in the second quarter of the year.

German output, which accounts for 30 per cent of the 15-nation eurozone economy, fell by 0.5 per cent in the second quarter — the weakest performance in more than five years, the Federal Statistics Office said.

This followed a 1.3 per cent surge in output in the first quarter of the year. However, the economy is still growing at an annual rate of 3.1 per cent.

France also posted a shock fall, shrinking by 0.3 per cent, down from a 0.5 per cent rise in the first quarter. This was below analysts' forecasts for a rise of 0.2 per cent. France is the second biggest economy in the eurozone, accounting for about 16 per cent of output.

However, Christine Lagarde, the French Economy Minister, rejected talk of recession this morning. Spealing on French radio, she said: "It is out of the question to talk of recession."

Germany and France are the third and fourth European countries to report negative growth this year. Ireland's output shrank by 0.2 per cent in the first quarter of the year, while Italy last week reported a 0.3 per cent drop in the second quarter.

Figures out later this morning are expected to show that the eurozone growth has tipped into negative territory, with analyts' expecting output to have shrunk by 0.2 per cent in the second quarter, down from a 0.7 per cent rise in the first three months of the year.

David Page, of Investec, the banking group, said: "There is a degree of volatility in Germany's figures and it is possible that output could rise again next quarter. But the French figures are a real shock and heighten the risk of a technical recession across the eurozone."

Ralph Solveen, an economist at Commerzbank, said that a technical recession — two quarters of negative growth — could be on the cards but that Germany would avoid a serious decline. “It will be a close-run thing whether we see a technical recession with two straight quarters of contraction. If we define recession as a significant decline in economic activity, then we will avoid one."

This will add to the pressure on the Bank of England, which yesterday said that Britain's economy could also tip into recession. The eurozone accounts for 55 per cent of UK trade.

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