Foreign demand likely kept Germany's economy growing in the fourth quarter but its economy is slowing as consumer spending on cars and retail purchases tails off, the Bundesbank said on Monday. A dispute among government coalition partners over whether the country can afford billions of euros in planned tax cuts quietened down on Monday with government members saying they would stop arguing in public and delay a decision on their scope and timing until at least May.

The Bundesbank's signals about decelerating growth coincided with warnings from International Monetary Fund officials that Europe's recovery depended on continued support from fiscal and monetary policy. The lacklustre German outlook also contrasted with news from France where Economy Minister Christine Lagarde said on Monday the nation's economy is expected to grow 1.4 percent this year, compared to a previous forecast for 0.75 percent growth.

"In view of further improving export expectations and increased orders in industrial sectors not directly linked to the automobile industry, the recovery process appears intact," the Bundesban said in a monthly report. Its view that growth could have continued in the fourth quarter contrasts with an assessment by the Federal Statistics Office last week that economic activity probably stagnated in the final months of last year, after the economy contracted by a record 5 percent for the year as a whole.

Germany emerged from its deepest post-war recession in the second quarter of 2009, when the economy grew 0.4 percent from the prior three months, and the rate of expansion picked up to 0.7 percent in the July-September period. Fresher data points to a stuttering recovery, however, and Economy Minister Rainer Bruederle said on Friday growth in the first quarter of this year could also be close to zero.

Official estimates show an optimism that the recovery will more than offset any setbacks over the year. On Monday, the Finance Ministry confirmed the government will increase its 2010 growth forecast to 1.5 percent from a previously expected 1.2 percent. Many economists see domestic demand as Germany's Achilles heel for 2010, as worries about unemployment take their toll on consumers already stretched after spending on new cars.

Germany's 5 billion euro ($7.2 billion) car-scrapping scheme, which offered 2,500 euros toward the purchase of a new car if owners scrapped their old one, helped lift car sales last year by around 1 million units by the time funds for the scheme ran out at the start of September.

Copyright Reuters, 2010