Germany, Europe’s largest economy, is now officially in recession after GDP slumped by 0.5 per cent during the third quarter.

The weaker-than-expected figures follow a revised 0.4 per cent fall in growth during the second quarter, and was made worse by a slump in exports as the euro strengthened and overseas demand for goods from other struggling economies waned.

The Federal Statistics Office said: “A negative effect on gross domestic product came from foreign trade, with a strong increase in imports and weakening exports.”

An announcement from Siemens, one of Germany's largest companies, added to the sense of gloom this morning. The engineering giant warned that "challenging" conditions in the global economy meant that its profit forecasts for next year were now "clearly ambitious". While Siemens confirmed its full-year guidance for the financial year 2008 to 2009, it reported a loss of 2.42 billion euros (£2.03 billion) for the fourth quarter.

The technical definition of a recession is two consecutive quarters of negative growth. The last time Germany experienced a full-blown slowdown was in the second half of 2003.

Ireland was the first European country to fall into recession, followed by Germany which is set to be joined by the UK, after the Bank of England’s Inflation Report revealed that GDP is set to fall by 2 per cent next year.

Last week, the European Central Bank cut interest rates by 0.5 per cent to 3.25 per cent, on the same day that the Bank of England slashed borrowing costs by 1.5 per cent to 3 per cent.

During the year to September, German GDP increased by 1.3 per cent, compared to annual growth of 3.3 per cent in the previous period.

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