FRANKFURT (Reuters) - Manufacturing is expected to drive a rebound in German economic growth in the fourth quarter after several lackluster months, Germany's central bank said in a monthly report on Monday.
With sentiment improving and new orders rising, employment growth is expected to continue, boosting the euro zone's biggest economy after several relatively modest quarters, the Bundesbank said.
"In the last quarter of 2016, growth in the Germany economy is likely to be significantly stronger after the temporary slowdown in the summer," it added.
"Sentiment in the economy has improved considerably. This is particularly the case in manufacturing, where capacity utilization has continued to rise significantly and new orders are up."
German growth slowed to a quarterly 0.2 percent in the third quarter from 0.4 percent three months earlier and 0.7 percent in the first quarter, putting growth at half the European Union's 0.4 percent pace.
The Bundesbank was upbeat, however, arguing that the foundations of growth remained intact.
Germany's government raised its 2016 growth forecast to 1.8 percent from 1.7 percent last month, forecasting the strongest rate of expansion in half a decade, on robust consumption and increased spending on refugees.
But growth will then slow to 1.4 percent next year, the government predicted, reflecting in part weaker global trade and the expected fallout from Britain's decision to leave the European Union.
The Bundesbank said prospects for employment had nevertheless improved significantly and that registered unemployment is likely to decline in the coming months.
(Reporting by Balazs Koranyi; Editing by Catherine Evans)