The German economy has reached its lowest ebb in a decade, growing 0.2 per cent last year. Europe's largest economy was also its weakest performer last year, avoiding recession only thanks to strong exports, according to official data released yesterday.

"A performance like this hardly earns the name growth," said Mr Johann Hahlen of the Federal Statistics Office, announcing Germany's worst economic performance since 1993. "Without exports, we would have had a gross domestic product \ of -1.3 per cent."

Mr Hahlen said declining demand in German firms affected not only their investment, down by nearly 9 per cent in some sectors, but also their demand for goods from the rest of the world.

Leading banks and economic institutes warned yesterday that there could be further bad times ahead for Germany. Its increasing reliance on exports to prop up the economy could have catastrophic results, according to a Reuters survey published yesterday.

War in Iraq and rising oil prices could plunge the economy into recession, according to the economists' survey. Their growing pessimism was reflected in a lower economic forecast for this year of just 0.9 per cent, significantly below the government's official forecast of 1.5 per cent.

Last week the economic and labour minister, Mr Wolfgang Clement, hinted the government was likely to cut its economic forecast in a review later this month.

He said it was "very unlikely" that the government's forecast would differ significantly from independent estimates that range from 0.6 per cent to 1.1 per cent.

A government spokesman said yesterday's trade figures gave "no reason for economic pessimism", saying there were already signs of an economic turnaround. The data confirmed what has long been suspected, that Germany's deficit has shattered the deficit ceiling of 3 per cent of GDP set down in euro stability guidelines. Germany's public spending jumped nearly €20 billion last year, pushing debt to 3.7 per cent of GDP, said Mr Hahlen. The European Commission has already put forward proposals to force Germany to reduce its deficit or face punishment which European finance ministers will vote on next week.

Mr Hans Eichel, the German finance minister, is determined to bring borrowing under control before the summer. But rising unemployment, now over 10 per cent and rising, and a corresponding rise in social welfare payments is hampering his attempts to control public spending.

Yesterday's economic report said a drop in unemployment was only likely once the economy begins to grow by 1.5 per cent.

The Chancellor, Mr Gerhard Schröder, said on Tuesday that Germany still had a "realistic possibility" of keeping under the 3 per cent deficit ceiling this year. Employer organisations were not so optimistic yesterday.

They urged the government to hurry through legislation to reform the employment market, making it cheaper and simpler to hire and fire workers.