The Bundesbank cut its outlook for gross domestic product growth next year from the 1.6 per cent it predicted in June. It also lowered its forecast for 2012 to 0.7 per cent from 1 per cent.
That put the central bank's outlook well below the government's prediction of 0.8 per cent growth this year and 1 per cent growth in 2013.
However, the Bundesbank forecast a rebound to 1.9 per cent growth in 2014 if the debt crisis in the 17-country eurozone doesn't escalate further and uncertainty among investors and consumers eases.
"It is also quite conceivable that the euro area will recover sooner and the world economy will accelerate faster than assumed in this projection," the Bundesbank's president, Jens Weidmann, said in a statement. "In this case, the German economy may be expected to utilize the additional growth opportunities."
The eurozone is in a recession that the European Central Bank has this week forecast will continue next year. The ECB cut its 2013 GDP forecast for the eurozone from 0.5 per cent growth to a 0.3 per cent decline.
Also on Friday, Germany's Economy Ministry said that industrial production was down 2.6 per cent in October compared with the previous month, a far worse performance than the flat reading economists expected. It already declined 1.3 per cent in September, though that was revised up from the 1.8 per cent initially reported.
The decline was led by a 4.3 per cent drop in production of investment goods such as factory machinery and a 5.3 per cent decrease in construction output. In year-on-year terms, overall production was down 3.7 per cent.
Recent data on the export-heavy German economy have presented a sometimes contradictory picture; on Thursday, industrial orders figures for October came in far above expectations, gaining 3.9 per cent on the month on the strength of healthier foreign demand. Business confidence turned upward in November after six months of declines.
Indicators underline "a fundamental negative dynamic" at the end of this year but also point to "a moderate economic acceleration from the beginning of 2013," said Alexander Koch, an economist at UniCredit in Munich.
One factor in the poor industrial production figures for October was high car production in the previous months as automakers cancelled planned summer holiday shutdowns at production sites, Koch said.