The Berlin-based institute estimated that at least 1 million more people would lose their jobs over the next 12 months.
As the worst recession since World War II takes a firmer grip on Europe's biggest economy, the government's own figures revealed this week that unemployment had risen to 8.2 percent in June, with nearly 3.5 million people out of work.
“In almost every sector of the economy, productivity has fallen in 2009,” the DIW report states.
With exports barely showing signs of recovery, the growth prospects for 2010 were looking dimmer than before with the economy recovering by 0.5 percent if at all, the report went on.
“Production has, after a free-fall, bottomed out,” DIW president Klaus F. Zimmermann said in the statement. “Indeed, there is the threat of a longer cyclical low without a foreseeable end. The most optimistic outlook offers only a small rise.”
“In the next year, the jobless figure will probably reach double figures and the number of people without work will climb to an average of 4.7 million for 2010,” he continued.
The Kurzarbeit mechanism, in which the government subsidises companies to put workers onto shorter hours rather than lay them off, had probably reached the limit of its effectiveness, Zimmermann said.