Derek Scally

in Berlin

The German economy shrank by 0.1 per cent last year in its worst performance in a decade but has now returned to growth, according to official data released yesterday.

Falling capital investment and weak consumer spending contributed to the poor economic performance of Europe's largest economy, the weakest showing since the economy shrank by 1.1 per cent in 1993.

"Economic development overall was disappointing in Germany in 2003, like in the previous two years," said Mr Johann Hahlen, president of the Federal Statistics Office.

"There were signs of a weak recovery in the second half of the year but one can't yet speak of a sustained revival." The government was more optimistic yesterday, saying that the economy was already showing signs of a rebound thanks to tax cuts implemented this month and a revival of consumer and business spending.

"Pent-up demand and the reduced tax burden of businesses and consumers give hope for an upturn in investment activity and consumption," said Mr Wolfgang Clement, the economics and labour minister.

Mr Clement's optimism is echoed, slightly more cautiously, by most leading economists. The so-called "six economic wise men" who advise the government on economic matters predict 1.7 per cent growth this year.

Meanwhile, a survey by Newsweek magazine has found Germany to be the most powerful country in the world after the US.

In a survey titled: "Power - Who's Got It Now", the US news weekly rated the 10 most influential countries in the world.

Germany came out second overall.