What should you do here?

You answered correctly. When you see damaged road surfaces like in this situation, German traffic regulations require you to greatly reduce your speed to ensure you maintain control over your vehicle and avoid potential damage. Continuing to drive in your lane is also correct because there is no indication that changing lanes is necessary or allowed in this situation. You should not attempt to drive left past the damaged area, as this could put you at risk of a head-on collision with oncoming traffic. Always slow down and stay in your lane when dealing with damaged road sections. This helps you react safely and avoid accidents.