Double-dip fears grip EU as growth stalls in Germany

Fears of a double-dip recession in Europe intensified today after hugely disappointing growth figures in Germany dragged down the region.

Europe's biggest economy and the world's fourth largest barely grew at all between April and June - managing expansion of just 0.1 per cent in its worst performance for more than two years.

The shock slide left growth across the 17 countries which use the euro at only 0.2 per cent, on a par with the sluggish growth seen in the UK in the second quarter.

Chancellor George Osborne is banking on an export-led recovery but flagging growth on the Continent could deal a heavy blow to these hopes - the eurozone accounts for almost half of British exports.

The French economy is stagnating while beleaguered Spain only managed growth of 0.2 per cent.

The latest grim news came as Bank of England Governor Sir Mervyn King warned that the crisis in Europe was of "particular concern" for the UK. In a letter to the Chancellor, Sir Mervyn warned of the risk of "further severe stress and dislocation in financial markets" which could have a "significant impact" on the UK economy.

The Chancellor again pledged to stick to his deficit-cutting plans. The dire growth figures offered a gloomy backdrop to today's Paris summit between German chancellor Angela Merkel and French president Nicolas Sarkozy aimed at tackling the debt crisis which has flared up in Europe in recent weeks, triggering huge share collapses in major banks.

Lloyd Barton, senior economic adviser to the Ernst & Young Eurozone Forecast, warned: "The longer the sovereign debt market remains stressed, the greater will be the damage to the wider economy."