Germany's economy is expected to likely shrink this quarter as industry is in recession and private consumption managed only a small addition to growth, the Bundesbank said in its monthly economic report on Monday.
Europe's largest economy experienced a brief recession and then managed to record flat growth in the second quarter, so a contraction in the current period would mean four consecutive quarters of negative or flat growth.
"Although there has been a slight slowdown in price increases, with strong wage increases and a good labor market, private households are still holding back on spending," the Bundesbank said.
"In addition to the impact on consumer spending, growing industry weakness is also weighing on economic performance," he added.
Eurozone inflation has halved since the end of 2022 to 5.3%. However, the rate is seen as still high and the European Central Bank has now raised its deposit rate to a record high of 4% to contain rapid price growth.
A rise in financing costs and dwindling orders for key industrial sectors for the country will also weigh on growth, the Bundesbank said.
"The continued decline in incoming orders, and the shrinking order shortage is increasingly impacting industrial output," the central bank said.
German industry, which is highly exposed to exports, has been particularly affected by weak demand from China and its recovery prospects remain dim, market economists said.
