The central banks of Germany and Austria on Friday forecast barely any economic growth in 2013, with the Bundesbank flagging risks of a recession in the euro zone's biggest economy as the debt crisis hits the bloc's core.
The Bundesbank expects Germany's economy to grow just 0.4 percent next year, down from a June forecast of 1.6 percent. The new projection is marked by "a high degree of uncertainty", it added, and "the balance of risks is on the downside".
Continue Reading Below
Austria's central bank cut its 2013 growth forecast for the country's export-dependent economy to 0.5 percent from the 1.7 percent it had expected in June, due to the global downturn, weak investment and sluggish consumer spending.
The downward revisions come a day after the European Central Bank lowered its forecasts for next year, pointing to weaker growth prospects for the bloc's core countries such as Germany, France and the Netherlands.
"Given the difficult economic situation in some euro-area countries and widespread uncertainty, economic growth will be lower than previously assumed," the Bundesbank said.
"The cyclical outlook for the German economy has dimmed. Enterprises are cutting back their investment and hiring fewer new staff," the German central bank added.
Germany has been a key growth driver of the euro zone, now in its second recession since 2009, but the country's resilience to the crisis is wearing thin and the central bank's new projections reflect this.
Germany could even enter a recession - defined as two consecutive quarters of negative growth - the Bundesbank said: "There are even indications that economic activity may fall in the final quarter of 2012 and the first quarter of 2013."
The euro fell to a session low against the dollar and German Bunds reversed earlier losses as a result.
Economists expect the German economy to contract in the fourth quarter but to improve as soon as in the first quarter.
"The Bundesbank is quite negative about next year," said ABN Amro economist Aline Schuiling. "What we are currently seeing is more and more evidence that the global industrial cycle is bottoming out."
Industrial orders and output have dropped in recent months, with exports falling at their fastest pace since late last year.
German industrial production fell by a much steeper-than-expected 2.6 percent in October, weighed down by weaker output in the construction sector and in investment goods, Economy Ministry data showed on Friday.
Auto industry association VDA said on Tuesday German new car sales could fall to the second-lowest level in more than two decades next year, as demand is hit by the euro zone crisis.
But some German economic data over recent weeks has been encouraging, with business morale rising for the first time in seven months and unemployment growing less than expected.
In Berlin, the German government was cautiously optimistic the economy will continue to grow.
"We have no doubt that we are still growing," Chancellor Angela Merkel's spokesman Steffen Seibert told reporters. "There are many indicators and they don't all point to a recession. The government is cautiously optimistic that we'll keep growing."
The Bundesbank said the slowing of the global economy, as well as recessions in other euro zone countries, were dragging on the German economy. But "the Bundesbank does not see a protracted slowdown but instead anticipates a return to growth path soon", it added, forecasting 2014 growth of 1.9 percent.
Austria's central bank forecast its economy would grow by 1.7 percent in 2014.
Austrian central bank chief Ewald Nowotny said his bank assumed the euro zone economy would reach its nadir in the fourth quarter, but past experience had shown expectations were not always met on time. "I hope this is not the case but I cannot rule it out," Nowotny said.
(Reporting by Eva Kuehnen and Sakari Suoninen in Frankfurt, by Michael Shields in Vienna, and by Gernot Heller in Berlin; Editing by Hugh Lawson/Catherine Evans)