Germany on Track for Solid Q2 Recovery: Bundesbank

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Germany, the euro zone's largest economy, is on track for a solid recovery thanks to a pick-up in demand for its products from abroad, the Bundesbank said on Tuesday.

Germany skirted recession in the first quarter thanks to a rise in private consumption. Its central bank said in its monthly report that it expected a further strengthening in the second quarter not only due to a catch-up in construction.

"The noticeable increase in industrial orders after a weak start to the year gives hope that with exports and equipment investments, demand factors - on whose stimulus the German economy can generally rely the most - will recover," the report said.

German industrial production rose in March, beating expectations, boosted by strong demand from the euro zone.

But the Bundesbank also said that economic risks remained high due to the weak economic situation in large parts of the euro zone and the problems arising from the debt crisis.

France slipped into recession in the first quarter, and due to its poor economic outlook Paris has been given two more years to cut its deficit to below 3 percent of gross domestic product.

The Bundesbank, whose President Jens Weidmann will travel to Paris at the end of the week, warned that too much flexibility in applying deficit-reduction rules could hurt credibility.

"The binding effect (of the rules) threatens to be damaged from the start if the impression arises that necessary deficit reduction could perpetually be pushed back as long as sufficient political pressure is applied," the Bundesbank report said.