Bundesbank sees German economy cooling at year-end

BERLIN Mon Nov 19, 2012 6:02am EST

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BERLIN Nov 19 (Reuters) - Europe's powerhouse Germany will likely lose further momentum at year-end as its economy is now feeling the brunt of the euro zone debt crisis and a global slowdown, the Bundesbank said on Monday.

The central bank said in its monthly report for November that more and more sectors no longer expected the economy to recover quickly but instead saw the euro zone debt crisis and global slowdown weighing on large parts of the economy.

"The economy currently presents a mixed picture, which is likely to cool further towards year-end," the Bundesbank wrote in the report.

"By now it has become unmistakable that the disturbing external factors are affecting the willingness to invest and job planning so strongly that the whole economy could be affected."

Germany's economy slowed to 0.2 percent growth in seasonally adjusted terms in the third quarter, flash data from the Statistics Office showed last week, and economists expect it to shrink this quarter.

Until this year, Germany had escaped the euro zone's problems largely unscathed, growing by a record 4.2 percent in 2010 and by 3 percent last year even as other euro zone states were in recession and some sought bailouts.

But recent data has shown even Europe's paymaster is taking a knock. The private sector is shrinking, while sentiment surveys are sinking, unemployment is on the rise and output is dropping.

The Bundesbank said that the jobs market would also be affected after significant income increases - following strong wage rounds after years of restraint. Unemployment has risen from post-reunification lows in recent months.

"Cyclical headwinds will also influence the labour market in (the fourth quarter of this year and the first quarter of next)," the Bundesbank wrote.

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