"The German economy started the third quarter well, despite the difficult international environment. However, the economic risks have risen significantly in recent weeks and the mood of investors and consumers has darkened," the Economy Ministry said in its latest monthly report.
"Growth will be slower in the rest of the year due to weaker external impulses and more cautious domestic demand from businesses and private consumers."
Germany, Europe's powerhouse economy and the world's second biggest exporter after China, have weathered the crisis relatively well so far, with low unemployment and dynamic growth.
However, clouds have gathered over the country and output slowed to 0.1-percent in the second quarter, as business and consumer confidence has slumped. With the world looking to Germany to lead Europe out of the crisis, Chancellor Angela Merkel has vowed to present a plan, along with France, to save the euro by the end of the month.
"For the future development of the economy, it will be crucial to win back the confidence of the financial markets in the growth potential and stability of the eurozone member states," the ministry report concluded.
The German government has forecast growth of 2.6-percent for this year. The economy ministry will update its outlook on the country's financial situation on Thursday.