With the short-term outlook pointing to recession, the Bundesbank has urged more economic reform

　　Berlin (Reuters) - Germany's economy is likely to shrink this quarter and authorities must address a series of deep-seated challenges to the country's business model to boost long-term prospects, the Bundesbank said.

　　The central bank said in a report that domestic consumer spending remained weak despite slowing inflation, strong wage growth and a stable labor market. At the same time, manufacturing weakness has intensified and higher financing costs could exacerbate downward pressure on domestic and foreign demand.

　　While companies have weathered headwinds such as energy shocks relatively well and there are no signs of an imminent collapse in manufacturing, "broad action is needed" to adapt to the new environment because "the issues to be addressed are complex and partly interconnected," the report said.

　　The central bank said companies should "rethink" their strong reliance on imports from China (CHN) and any further investment in the country as geopolitical risks increase. It also warned that some companies rely on products that are difficult to source elsewhere, and that sudden adjustments in supply chains will weigh on manufacturing in the short term.