Germany's economic research institute Ifo has raised its forecast for GDP expansion in the country this year and the next. The labor market should remain solid and trade surplus should increase, the think tank predicts.
The Munich-based Ifo economic institute on Tuesday increased its 2017 and 2018 economic growth forecast for Germany. For the current year, it now expects 1.8 percent GDP growth instead of the previously forecast 1.5 percent.
"The German economy is strong and stable. We are currently experiencing such a strong first half-year that the momentum will carry us into the coming year," Ifo's head of economic forecasting, Timo Wollmershäuser, said in a statement.
The institute also revised its 2018 forecast to 2.0 percent, up from an earlier prediction of 1.8 percent.
"As in previous years, the upturn is being driven by internal demand, especially by the construction industry and by private consumption," Wollmershäuser noted, adding that the dynamism is now spreading to manufacturing.
"The upswing of the economy in the euro area and the rest of the world is boosting exports. In the Ifo Business Survey, firms' business expectations are at the highest level since 1990."
Robust labor market
Ifo estimated that the number of people in employment in Europe's economic powerhouse would continue to rise.
According to the forecast, the number of those employed is expected to increase from 43.6 million in 2016 to 44.62 million this year and to 44.6 million in 2018, the highest level ever.
It added that the number of unemployed would decline from 2.7 million last year to 2.5 million this year and to 2.4 million in the coming year. That would amount to a drop in the overall jobless rate from 6.1 percent to 5.7 percent this year and to 5.5 percent in 2018.
Ifo also predicted a fall in the German government's budget surplus from 26.4 billion euros to 19.1 billion euros in this election year. However, it would increase again next year to the tune of about 22.9 billion euros.
Meanwhile, the surplus enjoyed by Germany's current account - which includes trade flows, investment, and other financial transfers across borders - is expected to continue. Germany's enormous surplus has recently been the subject of widespread international criticism.
Ifo estimated the surplus would increase in absolute terms from 261 billion euros to 265 billion euros in 2017 and to 279 billion euros next year. But its share of economic output would remain largely stable at around 8.3 percent.
The think tank said prices would increase more strongly than before, projecting that the inflation rate would jump from 0.6 percent to 1.7 percent this year and to 1.6 percent in 2018.
sri/tr (Ifo,Reuters, dpa)