The eurozone economy will grow more slowly than expected during the rest of this year as global conflicts continue to undermine business confidence, Europe’s largest central bank has warned.

The Bundesbank warned the eurozone economy will continue with only marginal improvements following the announcement of shrinking growth in Germany, prompting calls for stimulus from the European Central Bank (ECB).

Responding to their recent decision to cut interest rates to record lows, Germany’s central bank warned of the potential to “overheat” financial and property markets and disincentivise governments from reform.

It said conflicts in Ukraine and elsewhere – and European sanctions against Russia – were also affecting corporate sentiment, undermining the growth predicted for the rest of 2014.

“Following second-quarter stagnation, the euro area is looking at a resumption of positive economic growth, albeit not at the pace predicted by many analysts in the spring,” the Bundesbank said in its monthly report for August.

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“The geopolitical tensions in Eastern Europe owing to the Ukraine conflict as well as in other parts of the world are now appearing to weigh more heavily on corporate sentiment.”

The central bank added: “Current indicators cast doubt on the assumption on which the spring forecasts were based, namely that the underlying cyclical trend would strengthen further in the second half of 2014.

“Nonetheless, sentiment has deteriorated from a high level, which, together with the fact that the trend for domestic demand remains basically upwards, suggests that the economy will not change direction.”

The warning comes after a surprise contraction in the German economy combined with stagnation in France to raise concerns over the progress of the eurozone recovery.

Germany’s Federal Statistics Office said last week the economy shrank by 0.2pc between April and June. It had been forecast to stagnate, according to a Reuters poll.

via Eurozone growth to slow as Germany and France falter – Telegraph.