German economy will shrink significantly at the end of 2012 as a result of the eurozone debt crisis and falling industrial output, the country's central bank said in its monthly report on Monday.
"Current indicators point to a noticeable drop in economic production at the end of the year," the Bundsbank said, adding that economic outlook worsened due to global economic slowdown and falling demand from the rest of the eurozone.
However, the central bank said the drop in GDP will be brief and would begin to grow again next year, as "a further drop could be avoided" if weather conditions remain normal.
It also added that the robust health of the economy would prevent major damage, notably to the labor market.
Recent statistics showed that German economy has stabilized and appeared to be turning upward. Official data published on Monday indicated that employment in manufacturing industry increased by 1.7 percent in October, while exports would continue growing by at least three percent next year.
Germany has weathered the eurozone debt crisis safe and sound so far, but the impact of the crisis is increasingly felt in the powerhouse of the European economy, as the German central bank warned last month that the European sovereign debt crisis remained the greatest threat to financial stability in Germany as a substantial worsening of the situation would have a significant adverse impact on its banks and insurers.
In an earlier outlook for German economy published this month, the bank predicted a 0.4-percent expansion in 2013 after a 0.7-percent increase this year, while growth in 2014 is set to strengthen to 1.9 percent.
The forecasts indicate a major slowdown on the back of a 4.2-percent growth in 2010 and 3 percent in 2011.