FRANKFURT (Reuters) - Germany's dominant car industry may take longer than feared to recover from a slump, weighing on growth in the euro zone's biggest economy, the Bundesbank said in a monthly economic report on Monday.
Struggling to adjust to new emission testing standards, Germany's car manufacturing contracted in the third quarter, dragging overall economic growth into negative territory and raising fears that Europe's five-year growth run may be coming to a premature end.
While a quick rebound in the sector was forecast, fresh data was disappointing those hopes, the Bundesbank noted. It added that the slump was exacerbated by an overall deterioration in sentiment as well as uncertainty over the future of diesel cars as key cities contemplate bans to reduce pollution.
"Normalization in the automotive industry may be slower than initially thought," the central bank said in a regular report.
"The weak order intake from Germany and the slowdown in registration numbers could be an indication that domestic consumers are currently holding back on purchases," it added.
Still, export orders are strong and other segments of the economy continue to perform well, pointing to 'noticeable' expansion for the overall economy in the fourth quarter, the bank said.
The Bundesbank last week slashed its growth forecasts for this year and next on the car industry's struggles but predicted steady expansion for years to come.