The economic institute has cut its growth forecast for Europe’s largest economy as supply chain disruptions and a scarcity of chips are slowing down the recovery.

The institute now sees Germany’s gross domestic product growing 2.5 per cent this year, down 0.8 percentage points from its previous forecast, and 5.1 per cent next year, up 0.8 points.

The reduced growth forecast shows that Germany’s next coalition government will inherit a still-fragile recovery from Chancellor Angela Merkel who is stepping down following a Sept. 26 election, after 16 years in power.

The strong recovery from the virus crisis, originally expected for the summer, is further postponed, Ifo chief economist Mr. Timo Wollmershaeuser said.

Industrial production is currently shrinking as a result of supply bottlenecks for important intermediate goods. At the same time, service providers are recovering strongly from the coronavirus crisis, Mr. Wollmershaeuser added.

In a separate forecast, Germany’s association of private sector banks, BdB, gave a more optimistic growth outlook for 2021. It expects GDP growth of 3.3 per cent this year and 4.6 per cent next year.