By Andrea Thomas 

BERLIN -- Germany slashed its economic growth forecast, invoking a shortage of skilled workers at home and global trade tensions aboard, a fresh sign that the European powerhouse is increasingly vulnerable to U.S.-China trade disputes.

Germany's decadelong economic upswing is projected to continue because of strong domestic demand, but the world's third-largest exporter of goods -- after China and the U.S. -- is becoming more exposed to the unfolding trade dispute between Washington and Beijing, the government said.

The decision marked the latest indication of how President Trump's campaign to rewrite the terms of international trade to the U.S.'s advantage is reshaping the global economy. He also threatened Europe with higher tariffs on imported cars, a move that would hit Germany's flagship industry hard.

German gross domestic product is now expected to grow 1.8% this year instead of 2.3% as previously forecast, and 1.8% against next year instead of 2.1%, according to the government's fall economic outlook. Output expanded 2.2% last year.

"The German economy is still in a strong upswing and will continue to expand for the 10th consecutive year next year, the longest period of growth since 1966," said Economics Minister Peter Altmaier.

But, he said, "we could have considerably higher growth if...the German economy could expand at its potential growth rate...It has become increasingly difficult to find the necessary skilled workers."

While domestic demand is set to continue to support the economy, "mounting protectionist tendencies and international trade conflicts" were creating uncertainty, he said. "They harm all parties involved."

Mr. Trump has imposed tariffs on about half of the $505 billion that the U.S. imported from China in 2017. He has threatened to hit the other half with levies too.

German exports have fallen in three of the first four months of the year, manufacturing orders are down, and sentiment indicators are deteriorating fast.

In its outlook, the German government said exports are set to grow 2.8% this year from 4.6% in 2017 amid weaker global demand, before picking up pace again and rising 3.7% next year.

"Uncertainty around trade will weigh on business and consumer sentiment, potentially leading companies and consumers to postpone investment and consumption," said Moody's analyst Ruosha Li in a note. "As investors require higher risk premiums to compensate for rising uncertainty, companies may delay investment and refinancing costs will rise."

Others struck a more positive note, noting that the downward revisions were partly due to adjustments made to earlier data.

"GDP growth of close to but below 2% in the 10th and 11th year of a long expansion is still remarkable and strong," said ING economist Carsten Brzeski.

The government said the economy would add 1 million new jobs in 2019 compared with 2017, bringing total employment to 45.3 million.

Earlier this week, the International Monetary Fund cut its growth forecasts for Germany to 1.9% for both this year and next, down 0.3 and 0.2 percentage point, respectively.

Write to Andrea Thomas at andrea.thomas@wsj.com

(END) Dow Jones Newswires

October 11, 2018 10:52 ET (14:52 GMT)