Germany is widely considered Russia's closest ally in western Europe and is its biggest trade partner.
Thirty-seven percent of German gas imports come from Russia, some 4,600 German firms have subsidiaries in Russia and every fourth machine imported by Russia is Made in Germany.
Ties frayed when Russian troops rolled into Georgia in August after Tbilisi tried to reclaim control of the Moscow-backed rebel province South Ossetia.
Berlin though has been criticised for being too soft on Moscow, with Merkel pressing during the Georgia conflict for the lines of communication with Moscow to remain open.
Germany also has major concerns about Georgia and Ukraine joining the NATO military alliance - a prospect that has angered Moscow.
Germany's two biggest gas importers said Tuesday they were starting to feel the effects of the ongoing spat between Russia and Ukraine over gas supplies, as bitterly cold weather continued across Europe.
Putin speaks fluent German from his time living in Dresden in the former communist East Germany when he worked for the Soviet spy agency the KGB.