The German economy has slumped into recession for the second time in two years, official figures, released yesterday, show. Europe's largest economy is damping growth in the rest of the euro zone.

The Federal Statistics Office in Wiesbaden said yesterday that gross domestic product (GDP) slipped 0.1 per cent from the first to second quarter and was down 0.6 per cent compared with the same period last year. Coming after 0.2 per cent negative growth in the first quarter, the German economy fulfils the technical definition of recession: two quarters of negative growth.

However, most German economists yesterday backed the interpretation of the Bundesbank and leading economic think-tanks that the economy was experiencing "persistent stagnation" rather than a full-blown recession. "The value lies only just under zero, in which case we don't talk of a recession," said Mr Gustav Horn, president of the DIW economic institute. "Nevertheless such a long-lasting stagnation is an awful result."

The current situation, recession or not, is far less serious than the more difficult recessions of 1993 and 1982, he said.

The data from Wiesbaden show how the euro's 15 per cent surge in value against the dollar hit Germany's export market, the driver of the economy, as German products became more expensive for US consumers.

Exports were also hit as a result of a drop in production in Germany's all-important auto industry after strikes in eastern German factories.

News that Germany had entered a technical recession came as little surprise to German analysts. On Wednesday, the government agreed €15 billion in tax cuts for next year combined with plans to cut back social welfare benefits in an attempt to give some momentum to the country's ailing economy.

German Chancellor Mr Gerhard Schröder and Finance Minister Mr Hans Eichel hope that tax cuts plans and fresh employment market reforms will add impetus to initial signs of economic recovery, such as increasing business and consumer confidence.

Last week, the European Central Bank said it was more optimistic about a recovery, while companies such as BMW and Lufthansa said they had noticed an improvement in conditions. Deutsche Telekom, Europe's largest phone company, reported its second straight quarterly profit yesterday and announced it would resume dividend payments next year.

Nevertheless, the slide into recession, makes the government's 0.75 per cent growth forecast for this year increasingly unrealistic.

Meanwhile, Eurostat figures released yesterday show that the German economy dragged down the rest of the euro zone. The euro zone economy stagnated in the second quarter, after growing 0.1 per cent in the first quarter.