The German government slashed this year's economic growth predictions to 3% on Wednesday citing the impact of coronavirus lockdowns, a drop from last autumn's 4.4% forecast.
Chancellor Angela Merkel and state leaders agreed last week to extend the shutdown until mid-February.
"We are currently seeing a flattening of the number of infections, which is giving hope," said Economy Minister Peter Altmaier said.
He said German industry continued to do well, but services had suffered under the curbs that were imposed early in November and tightened in mid-December.
The economy shrank by a smaller-than-expected 5% last year, which marked the second-biggest economic plunge in the country's post-war history. The record slump of -5.7 came in 2009 in the aftermath of the global financial crisis.
Altmaeir said Germany was doing relatively well in international comparison, but that everything needed to be done to ensure a steady upturn in economic growth. Among these, he said, was a need to relieve companies of the burden of excessive bureaucracy.
The minister said that since the pandemic had taken hold, the German government had been successful in maintaining the core integrity of the economy and preserving the majority of jobs and businesses.
The Ifo institute said on Monday business confidence hit a six-month low in January amid a second wave of the virus.
Germany was relatively successful during the first phase of the pandemic, but saw infections shoot up during autumn and into winter.
The government closed restaurants, bars, sports and leisure facilities on November 2 in an effort to curb the escalation in cases. While there was some success in doing so, numbers remained stubbornly high. Schools and nonessential shops were closed on December 16.
While cases are now falling, authorities are concerned about the possible impact of new virus variants such as those detected in Britain, South Africa and Brazil.
jf/rc (AP, Reuters)