The German central bank said in a regularly released economic report on Thursday that the German economy is likely to slip into recession in the first quarter of 2024 as weak consumption and sluggish industrial demand continue to delay the economic recovery.

Europe's largest economy has struggled over the past year with soaring energy costs and rising borrowing costs, but a series of recent indicators, such as confidence data from the ZEW Economic Institute and the latest PMI data, suggest it has at least hit a bottom.

But the central bank's analysis does not point to a decent recovery, suggesting that 2024 will be another weak year for a country traditionally seen as the locomotive of Europe's economy.

"In particular, industry is likely to remain in a weak phase," the Bundesbank said: "Private consumption is not expected to receive much stimulation for the time being."

With both domestic and export demand at low levels, new industrial orders remain poor, with only a still relatively high backlog cushioning the industry.

The bank added that high interest rates have weakened domestic demand, especially investment demand, but uncertainty about major issues such as climate policy also affects investment decisions.

The Bundesbank added that inflation is likely to fall further in the coming months, but there may be some volatility, with price growth in services falling only slowly.

The bank said that despite Germany's bleak economic outlook, companies continued to retain employees and the unemployment rate was expected to rise only slightly in the next quarter. (over)