The Ifo institute downgraded its forecast for growth in Europe’s biggest economy in 2022 to 3.7 percent from an earlier estimate of 5.1 percent.
“Ongoing supply bottlenecks and the fourth wave of the coronavirus are noticeably slowing down the German economy, said Timo Wollmershaeuser, Ifo’s head of forecasts.
Disruption caused to supply chains by the pandemic has led to material shortages in everything from wood to semiconductors.
At the same time, Germany has been tackling a fourth wave of the coronavirus, with businesses in some areas forced to close early and unvaccinated people barred from non-essential shops.
The lower forecast could prove to be a headache for the new government, which took power last week, as it seeks to kickstart the economy with massive investments in digitalisation and climate projects.
Gross domestic product was expected to contract by 0.5 percent in the final quarter of 2021, Ifo said, as the economy struggles to return to its pre-pandemic level.
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For 2021 as a whole, growth is set to come out at 2.5 percent.
Recovery would pick up speed in the second half of 2022 “as the coronavirus wave subsides and the supply bottlenecks gradually end,” Wollmershaeuser said.
And looking further ahead, Ifo upgraded its growth forecast for 2023 to 2.9 percent from a previous estimate of 1.5 percent.
The German central bank or Bundesbank is scheduled to publish its own economic forecasts on Friday.