In their joint annual autumn economic forecast released on Thursday, research groups DIW, Ifo, IWH and RWI projected that Europe's largest economy is on course to expand 1.8 percent this year, down from the 2.1 percent growth prediction in April.

They left the forecast for 2016 unchanged at 1.8 percent. Despite the downgrade, the economy is still expected to expand faster this year than the 1.6 percent it recorded last year.

The think tanks said growth in the EU's economic powerhouse is being driven by private consumption and a gradual pick up in investment. They said the disposable income of German households is set to see a three percent increase, owing to rising wages and low inflation.

The export outlook is less upbeat, though, and for an economy hugely reliant on selling its goods and services abroad that is a problem. The experts' assessment comes on a day when data showed German exports recorded their largest month-on-month decline in August - down 5.2 percent - since the 2009 financial crisis.

While the institutes estimated a drop in unemployment from an average of 6.7 percent in 2014 to 6.4 percent this year, the jobless rate is projected to rise to 6.5 percent next year due to the high number of migrants and refugees currently streaming into Germany.

Impact of the migrant crisis

The institutes estimate the number of asylum seekers arriving in Germany to be about 1.5 million - around 900,000 this year and 600,000 in the next - by the end of 2016.

The influx is also expected to affect Germany's public finances. The government's budget surplus - expected to be around 23 billion euros this year - is projected to narrow to 13 billion euros in 2016, as a result of increased spending on asylum seekers.

While there have been growing calls for the government to open the German labor market for asylum seekers, the experts highlighted several challenges such as a lack of German language skills and work experience as well as the slow process of granting asylums, that needed to be tackled.

They said the German government should develop a comprehensive immigration policy and enforce other reforms for better labor market integration of asylum seekers and other migrants.

The economic institutes also called for increased investments in education and training, in addition to financial policy reforms that could ensure growth momentum in the economy.

sri/uhe (dpa, AP, Reuters)