German economy to slow down in second quarter

The German economy, Europe's biggest, will likely slow down in the second quarter after showing steady growth in the year's first three months, the Bundesbank central bank said Monday.

"The German economy started 2016 with a lot of momentum," it said in its latest monthly report. However "a decline in the pace of economic growth looks to be on the horizon for the second quarter."

The Bundesbank recalled that the German economy had seen "a solid rate of expansion" in the second half of 2015 with growth in the third and fourth quarters of about 0.3 percent, which it said "largely matched its potential".

The bank forecast first-quarter growth would match or slightly surpass that rate.

However it said stagnating industrial orders and a further worsening of the closely watched Ifo business climate index, including a sharp decline in its previously stable production and export expectations indices, did not bode well for the second quarter.

International demand for German goods had long kept the country largely insulated from external shocks including the slowdown in Chinese growth and other emerging markets as well as geopolitical tensions.

But the combined effect of negative factors is starting to be seen in certain indicators.

For the moment "the mood of consumers remains very optimistic", the Bundesbank said, after domestic consumption replaced exports last year as the primary engine of economic growth.

Speaking at the Bundesbank's annual news conference, president Jens Weidmann said the German economy was "in good shape overall" and hailed a "distinct rise" in real disposable income, due in part to low inflation.

For 2016 as a whole, the Bundesbank is pencilling in growth of 1.8 percent, slightly more than the government's forecast of 1.7 percent.