FRANKFURT, Dec 15 Reuters The German economy is set to shrink slightly this year and barely grow the next as demand from abroad is weak, government subsidies for the green transition are curbed and high interest rates dampen activity, the central bank said on Friday.

The Bundesbank39;s projections point to Europe39;s largest economy continuing to lag behind its neighbours as a decadelong boom fuelled by low interest rates, cheap energy and booming exports comes to an end.

Adding to the malaise, the German government has been forced to tighten its purse strings by a court ruling last month that enforced a deficit cap, resulting in cuts to green subsidies and other spending.

It is also important to note that state support for private investments in the areas of climate protection and transformation is now set at a lower level, the Bundesbank said.

The German government39;s latest budget deal was reached after the Bundesbank finalised its estimates, but the central bank said it would not have required fundamental revisions.

Below are the Bundesbank39;s new projections for inflation, as measured by the Harmonised Index of Consumer Prices HICP, and growth through 2026

2023

2024

2025

2026

HICP

6.1

2.7

2.5

2.2

GDP

0.1

0.4

1.2

1.3

Reporting by Francesco Canepa; Editing by Angus MacSwan…