Berlin, Mar 21 (IANS): Germany's economy is likely to contract further in the first quarter (Q1) of 2023 due to persistent high inflation, the country's central bank said in its monthly report.

"However, the decline is expected to be smaller than in the final quarter of 2022," said Deutsche Bundesbank.

In the period from October to December last year, gross domestic product (GDP) of Europe's largest economy fell by 0.4 per cent, reports Xinhua news agency.

The inconsistent recovery of exports was one of the reasons for the decline.

"In addition, the consumer-related sectors of the economy continue to suffer from persistent high inflation and the resulting consumer restraint," says the report.

Retail sales in Germany continued to fall at the start of this year.

According to the Federal Statistical Office (Destatis), currency adjusted sales in January were 0.3 per cent lower than in December last year.

Inflation in Germany stabilised at a "high level" of 8.7 per cent in February, Destatis said.

At 21.8 per cent year-on-year, prices for food rose particularly sharply, replacing energy as the main inflation driver.

In March, Deutsche Bundesbank expects inflation in the country to "decline significantly" due to a "base effect" from the high reference price level a year ago.

By the middle of the year, however, the inflation rate could rise again.

Due to high inflation, Germany is struggling as a business location.

Many German companies are planning to relocate production to the US, where energy costs are lower and companies receive high subsidies for environmentally friendly technologies through the Inflation Reduction Act (IRA).

According to a recent survey conducted by the German American Chamber of Commerce, 93 per cent companies in Germany intend to increase their US investments in the next three years.

One in five are even planning investment volumes of more than $10 million.