Berlin: Economic conditions in Germany are in a challenging state amid the elections and coalition debates for the new government, according to the Bundesbank's monthly report released Monday.

According to Anadolu Agency, German economic output fell significantly in the fourth quarter of 2024, with the German economy recording a quarter-on-quarter decline of 0.2% in the same period, as reported by the Federal Statistical Office (Destatis). "Significantly lower exports and weaker industrial output weighed on the economy in particular," it said.

The report highlighted that the decline in industrial output was primarily driven by the automotive industry and energy-intensive sectors. Excluding these areas, other sectors showed a slight increase in production. Positive trends were observed in the manufacture of electrical and data processing equipment, as well as other transportation equipment, which have been expanding over several years.

The Bundesbank report also pointed out the impact of high economic policy uncertainty and very low capacity utilization on investment, affecting domestic demand for capital goods and construction work. It also assessed inflation, predicting that the annual inflation rate in the country is expected to fall in the coming months but may temporarily rise again by mid-year.

On the political front, German election winner Friedrich Merz aims to form a new coalition government within eight weeks and has started informal preliminary talks, as reported by the Bild newspaper. Merz's Christian Democrats (CDU/CSU) secured 28.6% of the vote in Sunday's parliamentary elections, leading other parties but falling short of an absolute majority needed to govern alone.