China's booming economy helped German manufacturers to avoid a contraction in December, despite industry being hit hard by COVID-19 lockdowns at home and abroad.

Germany's Federal Statistics Office released figures that show the country's industrial output was flat in December, with demand from China helping the industrial sector to avoid a fall in output.

Output in core manufacturing rose by 0.9 percent, though there was a considerable fall in construction, which witnessed a drop of 3.2 percent in December.

Overall industrial output for the fourth quarter of 2020 was up by 6.1 percent compared with the previous quarter, with VP Bank economist Thomas Gitzel attributing the success to Chinese demand.

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"The German manufacturing sector has performed relatively well in recent months and that's mainly thanks to the well-running Chinese economy," he said.

"If production in China is humming, local production is also humming here," Gitzel said, adding that the German automobile industry with its premium cars was benefiting in particular from the good income situation in China.

There are also other factors behind Germany's impressive industrial performance. DekaBank analyst Andreas Scheuerle pointed to positive one-off factors in December related to the expiration of a temporary sales tax cut in January and UK clients stocking up supplies in preparation for a possible no-deal Brexit.

In 2020 as a whole, production in the manufacturing sector tumbled by a calendar-adjusted 8.5 percent on the year, in further proof of the wider economic devastation caused by the pandemic.

The outlook for the next 12 months is also uncertain as lockdowns continue across the world, resulting in hold-ups in supply chains and less demand for German-made goods as countries and consumers tighten their financial belts.

A survey by the Ifo economic institute has also shown that German business morale slumped to a six-month low in January as a second wave of COVID-19 halted a recovery in the economy.

The German government last month slashed its GDP growth forecast to 3 percent this year, a sharp revision from last fall's estimate of 4.4 percent. This means the economy probably won't reach its pre-pandemic level before mid-2022.