The German economy is set to return to growth in the first quarter after contracting in the fourth quarter, and growth will gradually pick-up pace during the reminder of the year, the Bundesbank said Monday.

In its monthly report, the bank noted that growth might not be boosted by exports as the prevailing external conditions indicate that demand is unlikely to rise significantly in the near term.

"There are signs that economic activity will gradually pick up pace in the remainder of the year, although the external environment should not be expected to kick-start a very strong surge in demand," the report said.

Though the easing of the debt crisis in the Eurozone has contributed to the improvement of the German economy, the need for reforms elsewhere in the Eurozone has to be addressed.

The bank also forecast that public deficit in Europe's largest economy would come in at 0.5 percent of GDP in 2013, reversing last year's 0.1 percent budget surplus.

In December, the central bank lowered Germany's growth forecast for 2013 to 0.4 percent from 1.6 percent previously estimated. The bank said growth will pick up to 1.9 percent in 2014.

The German economy contracted a faster-than-expected 0.6 percent sequentially in the fourth quarter, following a 0.2 percent expansion in the third quarter. The decline in activity was mainly due to the comparably weak German foreign trade.

Leaders of the G-20 nations Saturday said they are committed not to manipulate their respective currencies for gaining competitive advantage, allaying fears that the world is again on the verge of currency wars.

They also offered support for Japan by avoiding direct criticism of the government's aggressive plans aimed at ending deflation, which have led the yen further lower.

RTTNews