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German economy stagnant
BERLIN, Germany (CNN) -- German growth came to a standstill in the fourth quarter of last year, leaving Europe's biggest economy on the brink of recession. Gross domestic product stagnated in the three months to December 31, compared to 0.5 percent gain the third quarter of 2002, the Federal Statistics Office said on Wednesday. Economists polled by Reuters were expecting a decline of 0.1 percent in the fourth quarter. The economy expanded 0.5 percent from a year ago, just below the expected rate of 0.6 percent. Although the growth had not declined, like many economists had expected, concerns remain about the state of economy. Rising unemployment, tax increases and a war with Iraq could conspire to tip the economy into its second recession in two years. "This was a 'red zero.' The threat of recession is still there." Lothar Hessler, economist at HSBC Trinkaus & Burkhardt, told Reuters. "The most recent rise in the Ifo index is too small to say we'll have an improvement in the economy in the first quarter. Growth of 0.7 percent this year is still possible to achieve. The slightly better- than-expected figure for the fourth quarter gives no cause for hope." German business confidence -- the country's most closely-watched barometer -- rose strongly ahead of expectations, the Ifo research institute said on Tuesday. The business climate index, which surveys 7,000 of the country's businesses, rose to 88.9 in February from 87.4 in January – the second monthly rise. "For Germany overall, the signs are pointing to a change for the better,'' Ifo President Hans-Werner Sinn said on Tuesday. But he cautioned the west German index needed to show three successive rises to give a true picture. Germany as Europe's economic powerhouse has a big impact of the growth prospects of the 12-nation euro zone. European Central Bank President Wim Duisenberg lowered the bank's outlook for the euro zone economy and indicated it could cut interest rates soon. The ECB's key interest rate stands at 2.75 percent and will be reviewed at its monetary policy meeting on March 6. Financial markets already feel the ECB is warming towards another rate cut, possibly by as much as 0.5 percentage points. Previously the bank had said it expected growth to return to potential, or between 2.0 and 2.5 percent, by the end of this year. Duisenberg told the European Parliament last week he could no longer put a date on the recovery. Euro zone hopes for a recovery this year have been dimmed by a looming war with Iraq which is sapping business confidence and consumer spending. Germany's economy slid into recession in the second half of 2001 and has struggled to crawl out of the mire. "We're assuming that there will be a cut in interest rates relatively soon," Herald Joerg, economist at Dresdner Bank, told Reuters. " We're assuming stagnation or a slight plus in the first quarter. If there is then a quick end to the Iraq conflict, that could pick up to (GDP growth of) 0.5 percent in q2. Iraq is a big uncertainty."
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