The German central bank slashed Friday its 2013
growth forecasts for Europe's biggest economy as new data showed
industrial production contracting sharply in October.
The Bundesbank now expects 0.4 per cent growth in 2013 - down from its June forecast of 1.6 per cent - as recession and fiscal austerity takes hold across the eurozone and following a slowing global economy.
"The economic outlook for Germany has dimmed," the Bundesbank said as it released the new growth projections.
At the same time, the bank noted that "there is reasonable hope that the phase of economic weakness will not last too long and Germany will return to growth."
Instead of its previous forecast of a 1-per-cent expansion this year, the Bundesbank now projects a growth rate of 0.7 per cent as a result of the economy contracting in the final three months of 2012.
The 17-member eurozone lurched back into the recession during the third quarter as governments cut spending to trim high deficit-and-debt levels.
The Bundesbank expects the German economy to rebound in 2014 and post an expansion rate of 1.9 per cent.
The bank sees the unemployment rate climbing from 6.8 per cent this year to 7.2 per cent in 2013, before edging down to 7 per cent in 2014.
The downbeat economic outlook means that inflation will slow from 2.1 per cent to 1.5 per cent in 2013, the Bundesbank forecasts. Consumer prices should come in at 1.6 per cent in 2014.
Weaker inflation and slowing growth in Germany should also help to give the European Central Bank room to consider delivering an interest rate cut to bolster growth in the eurozone.
In the meantime, Germany's Ministry of Economics said industrial production had fallen by a more-than-forecast 2.6 per cent in October, from a drop of 1.3 in the previous month.
"Therefore, the German economy should contract by 0.25 per cent in the fourth quarter," said Commerzbank economist Ralph Solveen.
Analysts had expected the figures to show a more modest monthly decline of 0.5 per cent in October.
Year-on-year, industrial production was down 3.7 per cent in October.
Leading the latest monthly fall was a dramatic contraction in the building sector, with output shrinking by 5.3 per cent. Output in the manufacturing sector dropped by 2.4 per cent.
The slump comes despite the release by the ministry Wednesday of figures showing factory orders rebounding in October, thanks to a surge in foreign demand.
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