Germany's economy grew by a modest 0.7% in 2012 - but shrank in the fourth quarter, government figures showed today.

For 2012, the country's economy still grew faster than the rest of the 17 euro zone countries, which have been hit by a debt crisis.

But the numbers were down on the previous year, when the Germany's economy grew 3%.

No fourth quarter figure was given for gross domestic product. 

But the full-year total underscored what economists have been suspecting for some time - that the country turned in negative growth in the fourth quarter.

Growth was 0.8% in the first quarter, 0.3% in the second and 0.2% in the third. Analysts said the numbers showed that the German economy shrank around 0.3-0.4% in the fourth quarter.

The government said that shrinkage could have been around 0.5%, once calendar effects for different numbers of working days were eliminated.

Exports to the US and China have helped keep Germany going as demand sags in crisis hit-countries such as Spain, Portugal and Greece.

German growth had helped keep the euro zone as a whole from falling even deeper into recession.

Economists said that domestic demand remained a drag on the economy because businesses were not investing in new plants, buildings and equipment even as consumers were willing to spend money. Wages grew 3.6% last year, the third strong increase in a row.

The recent easing of financial market turmoil from the euro zone crisis over too much government debt in some countries could help motivate businesses to spend more in investment.

A second quarter of shrinking output would put Germany in an official recession, but the country's Bundesbank has said it does not expect that to happen even though growth for all of next year should come in at an anemic 0.4%.

The European Central Bank says it expects the euro zone to shrink by 0.3% next year. Germany also said it had reached a balanced budget under the official EU debt criteria, turning in a small surplus for 2012 of 0.1% of annual economic output.

Due to a methodological quirk, German state statistics agency releases annual growth figure before it issues fourth-quarter numbers. The official fourth quarter number will be announced next month.

Meanwhile, German inflation moved higher in December, for an annual 2012 rate of 2% overall for Europe's largest economy.

The Federal Statistics Office said that prices in December were up 2.1% compared to the same month in 2011, up from 1.9% in November.

Price increases in 2012 came largely from the energy sector, which saw an overall increase of 5.7% for the year.

The rate is down slightly from 2011's 2.3%, though up from 2010's 1.1% and 2009's 0.4%. The European Central Bank's target is to set policy to achieve an inflation rate of just below 2%.