The Bundesbank admitted on Tuesday that its profit had slumped in 2011 as a result of the eurozone debt crisis.

Germany's central bank said it booked a profit of only 600 million euros ($787 million) last year, down from 2.2 billion euros in 2010. It added it had already paid the surplus to the government.

The decline in earnings will leave a hole in the federal budget as Finance Minister Wolfgang Schäuble had originally reckoned with at least 2.5 billion euros from the bank.

"The main reason for the decline in profit is the increase in risk provisions," Bundesbank Chief Jens Weidmann said in a statement in Frankfurt. The central bank last year raised its risk provisions by 4.1 billion euros to 7.1 billion in response to the increasing severity of the eurozone debt crisis.

Leaving the worst behind

But with precautionary measures now in place, the Bundesbank says it can look to the future with confidence, and that the outlook has improved overall for the nation's economic development in the months ahead.

"The German economy is in a remarkably good shape," Weidmann said. He insisted that Germany would be able to log 0.6 percent growth this year after a 3 percent rise in 2011.

The central bank maintained that the domestic labor market remained expansionary and added that households would have more to spend again after substantial pay hikes at least in some industries.

However, the Bundesbank renewed its warning that inflation may reach between 1.8 percent and two percent throughout the year as a result of rising energy costs.

hg / mll (Reuters, AFP, dpa)