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German economy to shrink markedly in Q4

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FRANKFURT, Dec 17 AFP

December 18 2012, 01:08AM

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 has forecast.

"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 on Monday in its 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 per cent in the first quarter of 2012, gross domestic product (GDP) grew by just 0.3 per cent in the second quarter and a mere 0.2 per cent in the third quarter.

But the economy would likely contract in the final quarter, the Bundesbank predicted. And that would mean the economy would grow by just 0.7 per cent over the whole year, instead of the 1.6 per cent 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 per cent for 2013, it said.