Frankfurt - The German economy, Europe's biggest, is set to contract "noticeably" in the fourth quarter of this year and will probably tread water early next year, the Bundesbank forecast on Monday.
"Current indicators point to a noticeable drop in economic production at the end of the year," largely due to weakness in the country's key industrial sector, the German central bank wrote in latest monthly report, reiterating its updated growth forecasts published 10 days ago.
The outlook for German companies had "deteriorated" amid a slowdown in global growth and falling demand from the rest of the eurozone, it said.
After expanding by 0.5% in the first quarter of 2012, gross domestic product (GDP) grew by just 0.3% in the second quarter and a mere 0.2% in the third quarter.
But economy would likely contract in the final quarter, the Bundesbank predicting. And that would mean the economy would grow by just 0.7% over the whole year, instead of the 1.6% forecast in June.
Looking ahead to next year, the economy was unlikely to grow in the first quarter of next year, even if "a further drop could be avoided" provided weather conditions remain "normal", the Bundesbank said.
Overall, the central bank is pencilling in growth of a mere 0.4% for 2013, it said.
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