Germany's Ifo institute cut its 2024 economic growth forecast for the country on Thursday, saying uncertainty among consumers and companies, which has been further fuelled by a budget crisis that engulfed the government for weeks, was delaying recovery.

The institute now expects Europe's largest economy to grow by 0.9% next year instead of the 1.4% predicted in September.

"Uncertainty is currently delaying the recovery, as it increases consumers' propensity to save and reduces the willingness of companies and private households to invest," said Ifo's head of forecasts Timo Wollmershaeuser.

In principle, however, the economy is on the road to recovery, as purchasing power returns, demand is set to recover and high interest rates are in the rear view mirror, Ifo said.

Uncertainty around the government's finances abated somewhat on Wednesday after Germany's coalition parties reached a deal that reduces the 2024 budget by cutting subsidies for activities which damage the climate, spending in some ministries and federal grants.

Ifo President Clemens Fuest praised the agreement as a step in the right direction but said questions remain unanswered, particularly about whether enough investment can still take place.

With sinking energy prices, inflation is set to ease to 2% in the second half of the year, though it will remain well above 3% for a while for consumer-related services, said Ifo.

The surplus in the German current account balance will increase to 285 billion euros this year from 171 billion euros last year and will reach 316 billion euros next year, Ifo added.

($1 = 0.9271 euros) (Reporting by Miranda Murray, Editing by Rachel More, Kirsten Donovan)