Economic conditions in Germany are in a challenging state amid the elections and coalition debates for the new government, according to the Bundesbank's monthly report released Monday.

German economic output fell significantly in the fourth quarter of 2024, while the German economy recorded a quarter-on-quarter decline of 0.2 percent in the same period, according to the Federal Statistical Office (Destatis).

"Significantly lower exports and weaker industrial output weighed on the economy in particular," it said.

"The experts state that the latter declined in the fourth quarter, driven by the automotive industry and energy-intensive sectors. Excluding these two areas, production would have increased slightly," it noted.

Positive trends were seen in the manufacture of electrical and data processing equipment as well as other transportation equipment, which has been expanding for several years, according to the report.

"The high economic policy uncertainty and now very low capacity utilisation continued to weigh on investment and thus domestic demand for capital goods and construction work," it said.

The report also included assessments on inflation and said the annual inflation rate in the country is expected to fall in the coming months and temporarily rise again as of mid-year.

German election winner Friedrich Merz aims to form a new coalition government within eight weeks and has begun informal preliminary talks, the Bild newspaper reported Monday.

Merz's Christian Democrats (CDU/CSU) won 28.6 percent of the vote in Sunday's parliamentary elections, securing a clear lead over other parties but falling short of an absolute majority in parliament needed to govern alone.