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Europe's two biggest economies faltering

Europe's financial woes have deepened as its two largest economies reported faltering economies.

The German economy shrank by a larger-than-expected 0.6% in the final quarter in 2012, official figures showed, while French growth ground to a halt last year.

The quarterly decline in Germany – the continent's largest economy – was primarily due to a drop in exports as demand weakened from other European nations, the Federal Statistical Office said.

Germany relies heavily on exports to other European countries. As economic troubles grew in recent years in Spain, Italy and even France and Britain, demand for Germany's high-value industrial goods declined.

The fourth quarter drop was larger than the 0.4% to 0.5% decline being predicted by most economists, and was the German economy's worst performance since early 2009 when the world was reeling from a banking crisis.

Overall the economy grew by a paltry 0.7% in 2012.

In France, GDP for 2012 contracted to a flat 0%, down from 1.7% in 2011.

Earlier this week France's Prime minister Jean-Marc Ayrault acknowledged that France would miss ambitious budget targets intended to stabilise its economy and meet European requirements.

France is the world's fifth largest economy and the second-largest in Europe after Germany.

Despite the figures, there are hopes that Germany has started 2013 in better shape.

The central bank, the Bundesbank, said last month that there were signs of improvement and growth in the first quarter would prevent the country from falling into recession.

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