Another day, another package of bad news for the German economy. This week there was a fresh dip in the Ifo business confidence index and statistics showed that investment dived in the second quarter. The mighty economy shrank by 0.5 per cent in the second quarter.

This is new territory for Angela Merkel, the chancellor, who has enjoyed a healthy economy and annual growth of 2.6 per cent since coming to power in late 2005. As she embarks on the last year of her term, she faces the challenge of tackling an economy that is fast losing steam – and there are few signs she will rise to the test.