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Germany will avoid recession and return to growth in the first quarter of 2013, the country's central bank has said.

The Bundesbank's monthly report for February forecast that the rest of 2013 will see a gradual pick-up in activity in Europe's biggest economy.

If the economy shrank again in the current quarter, Germany would technically be in recession, defined as two quarters of contraction.

The economy shrank by 0.6% in the last three months of 2012.

"As it currently looks, a plus in economic output can be expected in the first quarter of this year," the Bundesbank said.

The report continued: "For the rest of this year, the economy is expected to pick up gradually, even if the external economic environment will provide no trigger for a sharp surge in demand."

Although Germany's economy has held up better than most of those in the eurozone, its recent slowdown has fuelled worries about Europe's recovery.

The purchasing power of German consumers and industry is seen as key to the recovery of the region.

Germany's gross domestic product slowed throughout 2012. GDP grew by 0.5% in the first quarter of 2012, and then by 0.3% in the second quarter and 0.2% in the third quarter.

With a contraction of 0.6% in the final three months of last year, the economy expanded by just 0.7% in 2012, compared with 3% in 2011.

The 17-nation eurozone fell deeper into recession at the end of 2012.

The European Central Bank has forecast that the eurozone will shrink 0.3% in 2013, and only start to recover later in the year.