David Prosser: German warning signals

Outlook Want to know what a double-dip recession looks like? Well, Germany could give us a good idea. Having beaten us out of recession, our European neighbour now looks as if it might be falling back once again – the latest data published yesterday suggests that the German economy grew by only 0.2 per cent during the final quarter of the year.

With the National Institute of Economic and Social Research now claiming that the UK pulled out of recession in the final quarter of last year, Germany's failure to sustain a recovery should worry us. (Mind you, although the think tank is usually pretty spot on in its estimates, it has got this recession quite wrong on several occasions.)

Germany is a country that is more dependent on exports than the UK, which is where the real weakness seems to have been during the final quarter, but this should not offer much comfort. What really seems to be stymieing Germany is the unwinding of its package of fiscal support for the economy, a process that we too are now beginning to embark upon, with the end of the cut-price VAT rate, for example, and the expiry of the scrappage scheme.

Happy news from the NIESR then, but we may only be in for a temporary reprieve.