German exports plunged in August by their largest amount since the height of the financial crisis and leading institutes slashed forecasts for growth, fuelling debate on whether Berlin is doing enough to prop up the domestic and European economies.

Exports slumped by 5.8 per cent in August, data from the Federal Statistics Office showed yesterday, the latest sign that Europe’s largest economy is faltering amid broader eurozone weakness and crises abroad which have battered confidence and delayed German firms’ investment plans.

“The economy seems to need a small miracle in September to avoid a recession in the third quarter,” said Carsten Brzeski, an economist at ING.

The Federal Statistics Office said late-falling summer vacations in some German states had contributed to the fall in both exports and imports, but the figures still painted a gloomy picture for Germany following steep drops in industrial orders and output data earlier in the week.

Hours after the trade data was released, a group of leading economic institutes joined the International Monetary Fund (IMF) in slashing forecasts for German growth. They are now expecting growth of 1.3 per cent this year and 1.2 per cent next, down from 1.9 and 2 per cent previously.

There is some room for manoeuvre for constructive fiscal policy

The institutes also urged the government to increase growth stimulus through capital spending and to encourage private investment, stressing there was sufficient “financial room for manoeuvre.”

“The most important job for economic policy in this field is to boost growth and create the right conditions for investment.

“There is some room for manoeuvre for constructive fiscal policy,” the institutes said.

Evidence is mounting that it barely grew in the third quarter and some economists are forecasting another contraction in that period, which would amount to a technical recession.