Germany's leading economic institutes today slashed their forecasts for growth this year and next year and said the government needed to increase spending in order to boost growth.
The German economy, Europe's biggest, would grow by just 1.3% in 2014 and 1.2% in 2015, the institutes predicting, much less than the 1.9% and 2% they had previously expected.
"Economic growth in Germany has cooled noticeably," the institutes said in their widely watched half-yearly report.
"After gross domestic product contracted in the second quarter and likely stagnated in the third quarter, the economic engine is finding it difficult to get going," the report said.
Domestic demand was weak, with the consumer climate deteriorating and companies continuing to scale back investment.
And foreign demand was also weak, with "only sluggish growth in the global economy and slowing momentum in the euro area," the institutes said.
They said that the European Central Bank was "trying its best to stimulate the euro zone economy and interest rates are very low in Germany as a result".
"However, the latest raft of measures are unlikely to provide any additional impulses for the economy," the institutes warned.
The government should therefore increase spending in the public sector, the experts believed.
"On the spending side, public spending should be increased in those areas which can potentially boost growth," today's report said.
Falling German exports slash trade surplus
German exports slumped by 5.8% in August, their biggest fall since the height of the global financial crisis in January 2009.
The figures are yet another sign that Europe's largest economy is faltering amid broader euro zone weakness and crises abroad.
The Federal Statistics Office said late-falling summer holidays in some German states had contributed to the fall in both exports and imports.
But the figures still painted a gloomy picture for Germany following steep drops in industrial orders and output data earlier in the week.
They are likely to intensify a debate over whether Chancellor Angela Merkel's government should be ratcheting up public investment in infrastructure instead of prioritising deficit reduction.
"We are no longer growing," said Volker Treier, chief economist at the German Chambers of Commerce and Industry (DIHK). "We have had too little investment in Germany for years now."
The data showed seasonally adjusted imports falling 1.3% on the month, at odds with expectations in a Reuters poll for an increase of 1%.
Exports had been expected to fall by a more modest 4% after rising 4.8% in July.
The trade surplus stood at €17.5 billion, down from €22.2 billion in July and less than a forecast €18.5 billion.
Germany's economy had a strong start to the year but shrank by 0.2% in the second quarter. Evidence is mounting that it barely grew in the third quarter and some economists are forecasting another contraction in that period, which would amount to a technical recession.
On Tuesday, the IMF slashed its 2014 growth forecast for Germany to 1.4% from 1.9%, and its 2015 forecast to 1.5% from 1.7%.
Later today a group of leading economic institutes is poised to sharply cut its forecasts for German growth.
The poor data comes at a time when pressure is mounting for Germany to use its healthy budget situation to boost public spending and spur growth in Europe.
However for now, the top economic priority of Merkel's government is to deliver on its promise of a "schwarze Null" - a federal budget that is in the black, or fully balanced - in 2015.
