Germany risks recession, in Bundesbank's bleak outlook

Germany risks coming dangerously close to recession, the central bank said on Monday in a forecast that predicted little or no economic growth in the second half of the year.

In the Bundesbank's gloomy assessment, the euro zone's biggest economy will stay weak, compounding the problems of the 18-country bloc, where the economy is already slowing to a virtual halt.

In its monthly bulletin, the Bundesbank predicted little improvement to Germany's recent weak performance, cautioning that the year would also end on a 'modest' note.

In the three months from April to June this year, Germany's economic output shrank by 0.2 per cent. Contracting in the third quarter would put the economy in recession.

"The total economic result should be on the level of the second quarter or even slightly higher," the Bundesbank said of the third quarter. "Given the weak orders and the downbeat mood among companies, the outlook for the final quarter of the year is similarly modest."

The downbeat performance of an economy once considered the region's last bastion of growth echoed the region's second and third largest economies, France and Italy. The former stagnated and the latter fell back into recession over the same period.

The slowdown could bring more calls for Germany to invest in order to lift its economy.

"The euro's main growth engine, hit by Putin and other confidence shocks, has stalled and that will mean that other parts of the euro zone will also be weaker," said Holger Schmieding, an economist at Berenberg Bank. "The German weakness is likely to spread somewhat to other parts of the euro zone."