The Bundesbank said the country's economy showed little sign at the start of the year, and stressors are likely to persist in the first quarter.
The German economy will continue to shrink in the first three months of the year due to policy uncertainty, strikes in the transport sector, and weak consumer and industrial demand, according to the Bundesbank.
In its monthly report on Monday, the Bundesbank said that "stressors are likely to persist in the first quarter", adding that this means that "economic output is likely to fall slightly again".
The German economy contracted by 03%, making it the worst performing major economy in the world last year.
However, the Bundesbank said there were few signs of the economy at the start of the year and warned: "With the second consecutive decline in economic output," the Bundesbank saidThe German economy will fall into a technical recession
Germany's economy minister, Robert Habeck, said last week that Germany would move this year's growth from 1 when the latest economic outlook was released on Wednesday3% to 02% will increase next year** from 15% to 1%.
In November last year, the Constitutional Court banned the use of extra-budgetary financing instruments to bypass the country's "debt brakes", leaving a gap of 60 billion euros in the spending plan. Habeck said this "has a direct dehibitive effect on economic growth."
The Bundesbank also seems to agree that doubts about fiscal policy are weighing on confidence, saying that "uncertainty over transition and climate policy remains high". The central bank said recent strikes on trains and airports could also affect production in the first quarter, while orders for industry and construction were "decreasing".
The report also added that demand for German industrial goods abroad has "recently shown a significant downward trend", that consumers in the country "may remain cautious about their spending" and that higher borrowing costs "may continue to dampen investment".
However, the Bundesbank saidA "substantial, broad-based and protracted recession in economic output" is not expected, especially considering that "household spending is likely to continue to improve against the backdrop of a stable labor market, large wages** and falling inflation".
Economists expect the German economy to recover slowly this year, aided by the recent decline in natural gas*** inflation and continued strong wage growth.
Holger Schmieding, chief economist at Berenberg in Germany, said that gross domestic product (GDP) of Europe's largest economy will grow by 04%, "Q1 is likely to remain very weak, so there are downside risks".
Schmiding said German companies are still suffering from "painful inventory adjustments" because they are producing less than sales and placing orders with ** merchants are also lower than demand. But he **the situation will ease "before Easter" and said that "consumer spending should start in the spring**".