Germany may be on the brink of recession after the sovereigndebt crisis caused the economy to contract in the final quarter of2011.

Europe's largest economy shrank “roughly” 0.25 percent in thefourth quarter from the third, the Federal Statistics Office inWiesbaden said today in an unofficial estimate. Economists such asChristian Schulz at Berenberg Bank expect gross domestic product tocontract again in the current quarter. A recession is defined astwo consecutive quarters of declining GDP.

“If the euro crisis does not get worse or is finally broughtunder control after another wave in early 2012, the German economycan rebound nicely from the summer onwards,” said Schulz, a senioreconomist with Berenberg in London. “However, we see a 25 percentchance of the euro crisis remaining out of control longer, orcompletely spiraling out of control with a series of sovereign andbank defaults. In such a scenario, Germany would enter a majorrecession.”