BERLIN Germany's DIW economic research institute slightly lowered its 2023 forecast for the German economy on Friday due to a surprisingly weak second quarter.

Germany's economy is now expected to contract by 0.4% in 2023, DIW said, versus its previous forecast of 0.2% contraction, with Germany being the only major global economy set to shrink this year.

Sluggish consumption by private households and weak exports, due to faltering demand from China, have slowed the recovery of the German economy, the institute said.

"Households' spending mood should benefit from significantly lower inflation, but the export-oriented German economy is slow to pick up speed despite an improving global economy," said Timm Boenke, co-head of the forecasting and economic policy team at DIW.

After the winter recession, the German economy stagnated in the second quarter and will initially grow only tentatively in the current third quarter, according to DIW's forecasts.

However, the German economy is expected to grow by 1.2% in both 2024 and 2025, said the institute.

"Stronger wage and salary increases should noticeably improve the willingness of households to spend and be the starting signal for the recovery of the German economy," said Geraldine Dany-Knedlik, co-head of the forecasting and economic policy team at DIW.

(Reporting by Maria Martinez; Editing by Miranda Murray)