Germany's central bank, the Bundesbank, sees no recession on the horizon for Europe's biggest economy. But the pace of economic growth is further decelerating on the back of weaker demand.
The German economy was set to continue on a "moderate growth" path, and may avoid economic contraction in the third quarter of this year, Germany's central bank said in its monthly report released Monday.
"Since July, industrial output has been picking up again, and construction activity has been growing, too," the Bundesbank wrote in the report, adding that this had the potential to continue to foster economic expansion.
However, it said medium-term perspectives were marked by persistently "great uncertainties," which were already affecting employment figures and domestic consumption.
In the course of this year, the German economy has slowed down from 0.5 percent growth in the first quarter to 0.3 percent from April to June.
Some economists think the country will face contraction in the remaining two quarters of 2012, as weak demand from struggling eurozone countries, as well as a cooler global economic climate, will weigh on German growth.
Latest economic indicators give a mixed picture of German economic development for the remainder of 2012. While, to judge by a recent rise in the forward-looking investor confidence index, the mood among German financial analysts is cautiously optimistic, business leaders see clouds emerging.
On Monday, the German Business Climate Index dropped for the fifth consecutive month, with top business players noting that economic development in the country was increasingly overshadowed by the economic gloom surrounding Germany.