FRANKFURT (Reuters) - The German economy likely expanded in the first quarter on an unexpected boost from industry and construction but there are still no signs of a meaningful recovery, the Bundesbank said in a monthly economic report.
Germany's central bank had long predicted another contraction for the quarter but unexpectedly strong figures at the end of the quarter boosted hopes that Europe's biggest economy may now be past the worst of its downturn after more than a year of stagnation or declining output.
"There is still no evidence of sustained improvement for the German economy," the central bank said. "Demand for industrial products from Germany and abroad remains weak and continues to decline."
High interest rates and economic uncertainty continue to hold back investment, households are hesitant to spend and residential real estate construction has yet to turn around.
Construction got a big boost over the winter months from exceptionally mild weather but the Bundesbank said this was a one-off factor and did not signal a change in the fortunes of the sector.
"It is therefore not yet clear that the increase in economic output will continue in the second quarter," the bank said.
The report acknowledged, however, the significant improvement in sentiment indicators and raised the prospect of a more rapid recovery should this sentiment improvement last.
"If this improvement continues, the underlying trend of the economy could also pick up more significantly than was expected a month ago."