Germany's central bank Friday slashed its forecast for German growth next year, warning that the nation's economy is under increasing strain from the euro zone's deepening debt crisis.
German growth is likely to slow to 0.6% in 2012, down from a 1.8% forecast in June, "due to a lean period in the winter months," the Bundesbank said in its twice-yearly outlook. German growth this year is likely to reach 3%, the bank said.
"Uncertainty about future economic developments is extremely high at present," the Bundesbank warned. "Greater weight should be attached to the downside risks stemming from the sovereign debt crisis."
A possible slowdown in emerging markets would further strain Germany's economy, the report added.
Still, the Bundesbank said it assumes "there will be no further significant escalation of the government debt crisis," and market uncertainty will recede somewhat.
German growth is likely to accelerate to 1.8% in 2013, the bank said. "Given an estimated potential growth of 1.25% per year over the entire projection horizon, this means that the German economy would be operating, by and large, at normal capacity," the report said.
Medium-term growth could be higher than forecast if the crisis can be overcome more rapidly and durably through planned reforms, the central bank added. "The domestic conditions for an extended, broadly based upswing are still intact," it said.
The Bundesbank doesn't expect the economic slowdown to lead to a significant rise in German unemployment, which is likely to average just below 3 million, or around 7%, in 2012.
Price pressures are also set to ease next year, with inflation likely to fall to 1.8% from 2.5% this year, the bank said.
Earlier Friday, data from the Federal Statistics Office, or Destatis, showed consumer prices were unchanged on the month in November, and increased 2.4% on the year according to final calculations. The figures were in line with economists' expectations.
The annual inflation rate fell slightly from October's reading of 2.5% and was also down from September's three-year high of 2.6%.
As seen in previous months, inflation in November was mainly driven by household energy and fuel prices. Food and non-alcoholic beverage prices also helped to fuel inflation.
Until September, annual consumer price inflation in Germany had accelerated this year, consistently hovering above the crucial 2% threshold. The ECB targets inflation at below or close to 2%.
The ECB cut its benchmark rate Thursday for the second month in a row as it forecast that euro-zone inflation was likely to stay above 2% for several months before declining to below 2% next year.
Based on items in a European Union-harmonized basket of goods, German consumer prices were unchanged on the month and up 2.8% on the year.
Meanwhile, German exports fell sharply in October after rising in the two previous months, narrowing Germany's merchandise trade surplus.
German exports fell a seasonally-adjusted 3.6% on the month in October to €88.1 billion ($117.5 billion) marking the biggest drop since April, while imports fell 1% to €75.5 billion.
The sharp drop in exports cut Germany's adjusted trade surplus to €12.6 billion in October from September's €15.1 billion, Destatis said.
The data "show the first signs of marked deterioration in trade for the biggest euro-zone country...due to the effects of the ongoing cyclical slowdown," said Annalisa Piazza, an economist at Newedge in London.
Germany's current account surplus also deteriorated in October, falling to €10.3 billion from an upwardly revised €16 billion in September, and missing economists' expectations for a €13.9 billion surplus.
The data appear to contradict recent figures that signalled German industry retained some resistance to the euro zone's debt crisis.
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