Germany, which is heavily relying on Russian gas, was widely expected to suffer a recession this year, a prospect which was weighing on the entire 20-nation euro area.
"Gross domestic product growth is likely to have roughly stagnated in the final quarter of 2022, exceeding earlier expectations," the Bundesbank said. "Recent data releases were better overall than assumed in the December projections."
Market-based natural gas prices have fallen by more than half since early December as consumption remains weak due to mild temperatures and Europe manages to find more gas on the market than expected.
Government subsidies to ease the pain of high energy costs for both households and businesses also helped prop up confidence and consumption, the Bundesbank added.
First quarter GDP data for the euro zone are released on Jan. 31 and, while official projections see a small contraction, economists and policymakers have recently argued that the figure could even be positive, suggesting that even if growth is weak, a recession could be avoided.
(Reporting by Balazs Koranyi; Editing by Andrew Heavens)
