Three leading German economic institutes have downgraded their forecasts for Europe's largest economy next year, predicting that high energy prices caused by the war in Ukraine will take their toll.

The IfW Institute in Kiel and IWH in Halle predicted that the economy will contract in 2023. IfW said the economy would contract by 0.7%, while IWH recorded a sharper decline of 1.4%. The RWI lowered its forecast for 2023, but still predicted growth of 0.8%.

This year, IfW, IWH and RWI still expect the German economy to grow, but not as much as previously thought, with forecasts ranging from 1.1% to 1.4%.

The government's most recent forecast calls for economic growth of 2.2% in 2022 and 2.5% in 2023.

Because private consumption accounts for most of economic output, the expected loss of purchasing power will have a negative impact on the economy, the institutions said.

The institutions, part of a group that advises the government, now project inflation to exceed 7 percent this year, well above the government's forecast of an average of 6.1 percent. For 2023, the forecasts differ: the RWI inflation forecast is at the lower end, at 3.5%, while IWH leads the range with 9.5%.

The German government on Sunday unveiled plans to spend 65 billion to protect consumers and businesses from the effects of skyrocketing inflation. The latest package brings to 95 billion euros the amount allocated to fight inflation since the start of the war in Ukraine.