Germany's shock standstill worsens Euro slump fears

Germany fuelled fears of a new European slump today as the region's powerhouse virtually ground to a halt between April and June.

Europe's biggest economy, and the world's fourth largest, endured its worst performance since the depths of recession more than two years ago, growing at an anaemic rate of just 0.1%.

This was well below the 0.5% pencilled in by economists and a dramatic slowdown from the 1.3% growth seen in the first quarter of the year.

The latest dire figures follow stagnant growth for France last week and spooked markets after a day of relative calm yesterday. The gloomy data sent the FTSE 100 55.16 points down to 5295.42, or 1%, while Germany's Dax tumbled 2%.

The German slide was driven by a poor trade performance, flagging consumers and weak investment. The giant's shock weakness slowed growth across the 17 nations using the euro to a worse-than-expected 0.2% between April and June, on a par with the UK economy's sluggish performance.

"With external demand slowing, ongoing heavy fiscal tightening in the periphery and the recent financial market turbulence, one cannot be too complacent about the risk of a new eurozone recession," ING Bank's Martin van Vliet warned.

Experts added that prospects for the third quarter were little brighter, potentially forcing the European Central Bank into a U-turn on interest rates after two hikes this year to combat an oil-driven inflation spike. Capital Economics European economist Jennifer McKeown said: "German business surveys don't suggest things are going to get any better. It is possible that the ECB will reverse the rate rises at some point. Consumer spending is very weak and so was business investment."

Chris Williamson, chief economist at Markit, added: "The weak data raises concerns that the euro area's hitherto strong core countries are undergoing a much deeper than previously thought soft patch."

The figures also revealed troubled Spain's economy slowing to 0.2% while bailed-out Portugal also ground to a halt, offering a gloomy backdrop to today's Paris summit between German chancellor Angela Merkel and French president Nicolas Sarkozy. Officials insist the issue of common European debt, or eurobonds, to ease pressure on the borrowing costs of the region's stragglers is off the agenda due to the extra burden placed on healthier economies. But nations such as Italy and Luxembourg have called for the move as a solution to the sovereign debt crisis.