Berlin - Germany is caught in the midst of a gloomy economic winter with the government attempting to hammer together a new stimulus package while a slew of fresh data underscores a deepening recession taking hold in Europe's biggest economy.

Figures released this week showing a dramatic 10.6 per cent plunge in German exports in November along with a hefty drop in factory orders and a bigger-than-forecast rise in December unemployment point to the economic downturn rapidly gaining ground.

This has added to pressure on the European Central Bank (ECB) to forge ahead with its rate-cutting cycle ahead of a crucial meeting next week, with figures also released this week showing eurozone inflation slumping to a two-year low of 1.6 per cent in December.

"Today's worse-than-expected economic data make an even more compelling case for the ECB to cut interest rates significantly further," said ING economist Martin van Vliet.

The new batch of bleak economic data comes as German Chancellor Angela Merkel's government attempts to piece together a second stimulus package worth up to 50 billion euros (68.7 billion dollars) to help the nation limp through what is expected to be the country's biggest economic downturn since the Second World War.

There is already broad agreement in the government on the need for measures to boost infrastructure development.

But Merkel is also battling to strike a balance between a push by her conservative Christian Social Union allies for big tax cuts to spur growth and her Social Democrat coalition partners, who have been resisting lowering taxation.

On top of that, Berlin has earmarked 100 billion euros to help German companies to face up to the growing world-wide economic crisis.

But highlighting the deepening sense of gloom in Europe, the European Commission released Thursday its closely watched economic sentiment survey, which showed the economic mood in the eurozone falling to a record low in December.

In an interview ahead of next week's crucial gathering of the ECB's 22-head rate-setting council, ECB chief Jean-Claude Trichet indicated that the bank might be prepared to trim borrowing costs again after it delivered a 75-basis-point cut at its meeting last month.

"It's clear that we have had a significant deterioration in the real economy," Trichet told the Institutional Investor magazine.

But despite the bleak economic data continuing to pile up across Europe, economists are uncertain as to how far the ECB might be prepared to go in cutting rates next week.

This follows forecasts that the Frankfurt-based bank might decide to leave monetary policy on hold or deliver only a modest 25-basis- points reduction.

However, the downbeat economic data and indicators are expected to continue to roll in the run-up to the ECB meeting set down for Thursday.

Figures to be released Friday are tipped to show German industrial production in the nation falling by 2 per cent in November. This would represent a drop of 5.5 per cent over the year.

After sinking into recession during the third quarter last year, economists have been revising down sharply their 2009 forecasts, with projections pointing to the German economy contracting by between 2 and even 4 per cent this year.

Leading German companies have already announced plans for layoffs and cutting production as global economic growth spirals downwards.

The German Labour Office said Wednesday that unemployment in the nation rose for the first time in nearly three years in December with the numbers out of work rising in seasonally adjusted terms by a more- than-forecast 18,000.

"The December figures show that the economic crisis has reached the labour market," said Labour Office chief Frank-Juergen Weise releasing the data.

But Elga Bartsch, economist with Morgan Stanley, believes that there is a key difference between the current downturn in Germany and the one that hit the country in the early part of this decade.

"Back then, Germany was seen as the sick man of Europe, mired in deep-rooted structural problems," said Bartsch. "Today, Germany is in for a major cyclical downturn, but it does so on a much stronger structural footing." (dpa)