Why was the German Jewish population declining so much that some statisticians predicted its disappearance even before the 3rd Reich?

The German Jewish communities experienced an earlier demographic transition, starting shortly before the First World War, compared with the rest of the German population, meaning that while the absolute numbers still grew somewhat, its relative share compared to the total population was already shrinking.

Average marital age increased, number of birth per woman fell, some emigrated, others converted, even from 'mixed marriages' — becoming more common after 1851, the offspring was often baptised and just 'raised Christian', the constant influx of Jewish immigrants mainly from the East wasn't that big to begin with and many of those new arrivals had a hard time of just getting residency permits, let alone citizenship status.
Beware: The members of Jewish communities were counted differently between 1933 and 1945.

For the after Berlin second largest Jewish city community in Hamburg it looked like this:

Specifics of Jewish demographic development

Since the turn of the century the Jewish share in the overall population was in nationwide decline, and the absolute number of Jews had also begun to decrease since the mid-1920s. In 1933 they only accounted for 0.77 percent of the total population. This population decline was mainly caused by a drop in birth rates setting in at the end of the 19th century. Meanwhile conversions and individuals giving up their Jewish faith only played a minor role, even though the threatening scenario of loss they evoked loomed disproportionately large.

Some reasons for the changes in the Jewish population’s demographic profile were specific to the Jewish community. The mortality rate among Jews was much lower than among non-Jews, and the life expectancy among newborns was higher than in the overall population, for example. Since the birth rate among Jews declined earlier than it did among Christians and the overall population also benefitted from a declining mortality rate, the share of Jews in the overall population decreased statistically, however.

The marital age among the Jewish population had risen in the course of the 19th century while the number of children per family decreased. These factors contributed to the ageing of the Jewish population. In Prussia the average age for Jews in 1925 was 30.5 years. In 1923, women had an average of 1.3 children. Roughly a quarter of married Jewish women did not have children. Worried contemporaries described this demographic development as “the demise of German Jewry.”

One peculiar aspect of Jewish life was the question how to deal with marriages between Jews and non-Jews. There was a noticeable rise in “mixed marriages” , meaning marriages across confessional boundaries. These mainly occurred in major cities where the number of the Jewish population was higher after all. Moreover, this was where Jews and non-Jews met in an acculturated urban milieu where religious affiliation had increasingly become a matter of secondary importance. Since 1849 Jews who had acquired citizenship in Hamburg were permitted to marry a member of a different confession. Women were not granted this right until 1851, when civil marriage [Zivilehe] was introduced. In the mid-19th century there also were a growing number of marriages between Sephardic and Ashkenazi Jews. The overall number of “mixed marriages” in Hamburg increased significantly and was higher than average; after the First World War they accounted for 25 percent of all marriages involving a Jewish partner, and in 1933 it was almost 60 percent. Numbers like these caused concern within in the Jewish community fearing for its survival because the children of these marriages usually were baptized or at least raised as Christians. The above-mentioned specifics of the Jewish population profile lead to an almost obsessive occupation with demographics among representatives of the Jewish minority. Precisely because they were a minority, threatened by antisemitism from the outside and challenged by the dreaded trend towards dissolution on the inside, the study of the social and demographic development of one’s own social group became central at the turn of the 20th century.

— Miriam Rürup. "Demographics and Social Structure", Key Documents of German-Jewish History, A Digital Source Edition, 22.09.2016. <doi>

For the entire country, the development shows as follows

Numbers only present faith-based census data and only compare 'Christians' (calculated above as from 'Evangelical/Lutheran/Protestants', 'Roman-Catholic' plus 'others') versus 'Israelites'. Compiled from — Statistisches Jahrbuch für das Deutsche Reich, Vol 1899, 1909, 1913, 1929, 1934.
Later (nazi) editions change "Israelites" to "faith-based Jewish" and show an apparently sudden increase in absolute numbers, mainly by now incorporating the numbers from Jews in Austrian and Sudeten lands.

The 1933 and 1939 census data which was used to specifically target the Jewish population for persecution showed a further decline in 'peace-time' to 0.4% share of the total population. Calculations towards how many during that time were counted in which sub-category of racist Jewishness definitions are at the above Wikipedia page.

By the time of the Wannseekonferenz in 1942 the regime itself calculated to still have 175500 — now supposedly 'racially' defined — Jews within Germany including Austria.
Earlier historical research arrived at a number of 160000 German Jews eventually killed, newer research brings that to 175191 killed, 90% of those in extermination camps in the East. The latter number includes those who fled earlier towards the East, but were then captured during the war. Some discrepancies in numbers include differing definitions (eg sometimes Polish Jews at some time residents in Germany were counted, sometimes categorised differently). Up to that point 73% of German Jews had managed to escape Germany.

— Nicolai M. Zimmermann: "Was geschah mit den Juden in Deutschland zwischen 1933 und 1945? Eine Dokumentation des Bundesarchivs", in: Zeitschrift für Geschichtswissenschaft, Vol 64, No 12, 2016, p1045–1052. (publisher, magazine article about it, )

Commentary:

Arendt uses this hyperbolic description for some statisticians making modelled predictions about the future. Which in turn then could be interpreted in the way described, taking perhaps still a few decades. Obviously, members of Jewish communities were worried indeed, and sometimes perhaps a bit too much, that their numbers started shrinking, first in relative terms compared to their German co-citizens, and then indeed in absolute terms. This has to be read in context of antisemitic opposites in 'true' German statisticians calculating 'swelling numbers' for this section of the populace, partly by counting immigrants from the East wholesale into that category, partly by sheer madness of constructing an internal enemy and inflating his importance.

The demographic transition within the Jewish community was surely influenced by the antisemitic pressure exerted on them, as Germany was rife with that before the Third Reich. But compared to other countries — at that time, pre-1933 — Germany was one of the more attractive immigration destination countries, evidenced by for example quite a few mainly Polish Jews coming there and trying their luck. The antisemitic pressure thus was much less violent, but exerted its forces more on life choices for Jews within Germany: having relatively few children, but investing a lot into those few each. Giving these already more than average urbanised members of society good educations etc. Before the full terror of the nazis was unleashed, the influence of that German antisemitism on numbers of community members was therefore a bit more indirect, and smaller, while emigration and flight played a really big role after January 1933.

To really get Arendt's hyperbole, we might look at demographic predictions for our time in ageing Western, Chinese or Japanese populations, predicting doom and gloom without increasing reproduction rates now, better yet "a few decades" ago, or the neo-malthusian predictions of the alleged imminent threat of overpopulation. On the one side. The other side is of course that an already small and further shrinking part of a population was still abused in the known way and depicted as a bogeyman, while at the same time the nazi race-laws themselves and the conquering of countries with much larger Jewish population shares meant that in a another perspective one could argue that the nazis themselves increased the numbers of Jews within that shortlived 'Greater Germany' by quite a lot. This 'irony' to the overall absurdity seems to be an important point in Arendt's quipped line here.