Germany's six top economic institutes have cut their economic growth forecasts for this year in half.
Workers are accepting pay cuts to keep their jobs
They are now predicting the German economy will grow by just 0.7%, compared with their earlier predictions of 1.5%.
Chancellor Gerhard Schroeder has said the new forecasts are "not good".
Exports are being curbed by the strong euro, oil prices are hurting business and domestic demand remains stubbornly slack, the six think tanks said.
Weak growth is likely to intensify the problems facing Chancellor Schroeder's centre-left government as it battles to prune state spending at a time of record post-war unemployment.
Five million Germans were out of work last month, giving a jobless rate of 12%, compared with about 5% in the UK and the US.
Chancellor Schroeder said the forecasts were "not as high as we had hoped".
He was speaking at a joint press conference with France's President Jacques Chirac in Paris, where the German leader is trying to aid Mr Chirac's increasingly embattled campaign for a 'Yes' vote in France's referendum on the new EU constitution.
As Germany is the biggest economy in the eurozone, and the third biggest globally, its economic woes can spell trouble for other eurozone countries.
Mr Schroeder (left) keeps smiling, but admits the economic news is glum
The think tanks said Germany found itself "in a spot of economic weakness this spring", adding that the recovery seen in the early part of 2004 had "come to a standstill". Germany grew 1.6% in 2004, its best level since the late 1990s.
"At the moment, high oil prices and the rise in euro are making themselves felt not only in Germany, but also among its trading partners in Europe," said Joachim Scheide, chief economist at IfW, one of the six think tanks.
The European Central Bank (ECB) is now thought likely to keep interests rates steady at 2% for a while longer. Rates have been left unchanged for almost two years.
The new, gloomier forecast echoes that of the International Monetary Fund, which has slashed its 2005 forecast for Germany to 0.8% from 1.8%.
The six think tanks are DIW, HWWA, IfW, RWI, IWH and Ifo. Their previous set of predictions were issued in October.