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Germany’s economic growth picked up only moderately in the first quarter and the underlying pace of expansion remains subdued on the back of an industrial downturn, according to the Bundesbank.
Orders in manufacturing have “literally collapsed” and the mood has “significantly deteriorated” in the industry that used to be the motor of export-heavy economy, the German central bank said in its monthly report on Monday.
The sobering assessment comes after the euro area’s largest economy barely skirted a recession at the end of last year and prospects for recovery remain dim. Bundesbank President Jens Weidmann admitted on Saturday that growth could be slower than 0.8 percent this year -- half the current forecast -- and the government is reportedly preparing to slash its own predictions as early as Wednesday.
The weakness is a major headache for the European Central Bank as policy makers try to understand whether they are dealing with a soft patch or a broader downturn that calls for a forceful response. A recovery in the second half of the year is still the most likely scenario, according to Weidmann.
In some good news, the Bundesbank said favorable weather in February continued to drive the construction boom in Germany. Private consumption has overcome its weak phase as fiscal measures adopted by the government gave spending a lift.
Car sales have also been buoyant after consumers put off their purchases late last year when a switch to new emission testing curbed production at German automakers, according to the Bundesbank.
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