(Bloomberg) -- The German economy — Europe’s largest — is set to avoid a winter recession thanks to a pick-up in manufacturing, rising exports and surging construction at the start of the year, according to the Bundesbank.

After warning just four weeks ago that output probably shrank for a second straight quarter between January and March, the central bank said the period may, in fact, have seen a “slight increase.” It did, though, caution that a sustained recovery isn’t assured.

“Germany’s economic situation has brightened somewhat, but it remains weak at its core,” the Bundesbank said Thursday in its monthly report. “It’s therefore not yet certain that the increase in economic output will continue in the second quarter.”

Once the continent’s growth engine, Germany has trailed its peers of late, with its outsized industrial sector suffering from supply snarls, the end of cheap Russian energy deliveries and trade shifts caused by weak global demand and geopolitical shocks. It was the only Group of Seven country to see output contract last year.

Some don’t see an end to the nation’s struggles just yet: A Bloomberg survey of analysts published this week showed gross domestic product probably decreased by 0.1% in the first quarter.

But there were encouraging words this week from European Central Bank President Christine Lagarde, who told CNBC that Germany “might have turned the corner,” with industrial production having “ramped up” more than anticipated.

Indeed, optimism among consumers, businesses and investors has grown recently — feeding hopes that Germany can leave its woes behind. “If this improvement continues, the economy could also pick up more significantly than was expected a month ago,” the Bundesbank said.

There are caveats. Industry remains weak and construction is likely to decline after being boosted by a mild winter, the central bank warned. High interest rates are also damping investment, while export demand is still weak and households are hesitant to spend — despite a healthy labor market, rising wages and slowing inflation.

Factors like that are reflected in this week’s downgrade by the International Monetary Fund to its forecast for German economic growth in 2024. It now sees GDP increasing by just 0.2%, from 0.5% three months ago.

Speaking in Washington later on Thursday, Bundesbank President Joachim Nagel was more upbeat, predicting annual growth in a range of 0.3% to 0.5% for 2024 and then more than 1% next year.

If the Bundesbank’s first-quarter “assessment is correct, we assume that the momentum would continue over the course of the year,” he said. “Of course, these are not exuberant growth figures. Here too we must not get carried away, but it looked much more difficult just a few weeks ago. And we also assume that the global economy will perhaps pick up speed in the second half of the year, which in turn could help German foreign trade.”

--With assistance from Zoe Schneeweiss, Alexander Weber and Kamil Kowalcze.

(Updates with Nagel comment in penultimate paragraph)

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