Berlin - The German government warned Thursday that the nation was on the brink of recession as it slashed its growth outlook for Europe's biggest economy in the wake of world's financial crisis.

Instead of a previous forecast of 1.2 per cent, Berlin now expects the nation's economy to expand by a meagre 0.2 per cent next year as economists expressed concern that the world economy could be facing a deep and protracted recession.

However, setting the government new growth projections, Economy Minister Michael Glos said it made no sense to set out "horror scenarios" about the economic outlook.

Glos went on to say that the financial firestorm that swept through financial markets in recent weeks underscored the need for Germany to launch another overhaul of its tax system.

"Beyond what we've already agreed, there is an urgent need for tax relief," said Glos.

The government's decision to scale back its growth projections followed a downbeat report issued earlier this week by Germany's leading economic institutes.

The release of Berlin's revised growth projections also coincided with the nation's Chamber of Industry and Commerce (DIHK) cutting its German economic forecasts and seeing the nation entering a period of stagnation.

The DIHK expects growth in Germany to come in at just 0.5 per cent in 2009 with economists seeing the world's leading export nation as being particularly vulnerable to a global slump in exports as the downturn in the international economy intensifies.

Previously the DIHK had expected the German economy to expand by a modest 1.2 per cent. Germany is expected to grow this year by about 1.7 per cent.

The DIHK also released a survey showing a growing sense of gloom among 25,000 of its company members about the economic outlook.

"There is no doubt that company expectations have been significantly dampened," said DIHK chief Martin Wansleben unveiling the new growth forecasts in Berlin.

"But we are far removed from any reason to panic," he said.

The DHIK survey said the number of its members who see a decline in business conditions increased to 27 per cent from 17 per cent in June. The number of companies expecting exports to slump dropped from 24 per cent to 17 per cent.

Wansleben said that signs of slowing export markets had already started to emerge.

This included export markets in emerging economies such as in Asia, Latin America as well as Central and Eastern Europe which have been major forces in driving German foreign orders.

The DIHK predicts German exports will grow by 2.2 per cent next year after increasing by 5 per cent in 2008. (dpa)