FRANKFURT (AFP) - Germany, Europe's biggest economy, will avoid recession and return to growth in the first quarter of the year after activity contracted at the end of last year, the Bundesbank said on Monday.

"As it currently looks, a plus in economic output can be expected in the first quarter of this year," the German central bank said in its February monthly report.

German gross domestic product (GDP) shrank by 0.6 per cent in the last quarter of 2012. Were it to decline again in the current quarter, Germany would technically be in recession, which is defined as two quarters running of economic contraction.

But the Bundesbank joins other economic experts and observers who believe the dip in growth will prove short-lived. "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," it wrote.

Although Germany has fared much better than its euro zone partners in the long-running debt crisis, it has not been able to escape completely unscathed and growth slowed throughout last year as the recession in much of Europe put the brakes on exports.

German GDP grew by 0.5 per cent in the first quarter of last year and then by 0.3 per cent in the second quarter and 0.2 per cent in the third quarter. With the contraction of 0.6 per cent in the fourth quarter, the economy expanded by just 0.7 per cent across the whole of last year, compared with 3 per cent in 2011, according to the latest data compiled by the federal statistics office Destatis.