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Business

Think tanks paint brighter outlook for German economy

Leading European economic institutes have sharply raised their growth forecast for the German economy this year. They predict output will expand strongly thanks to cheap oil, the weak euro and strong consumer spending.

In a significant upward revision from their autumn growth estimate, the economic think tanks forecast Germany's gross domestic product (GDP) will rise by 2.1 percent in 2015, rather than 1.2 percent as they predicted in October.

The Annual Spring Forecast was issued on Thursday by a group of seven institutes from Germany, Austria and Switzerland. In their report they said "consumer spending is the pillar of the upswing," adding that Germany also benefited from "positive impulses from the rest of the euro area."

"The low oil price leaves the Germans more money for consumption, and the low euro is pushing exports," said Timo Wollmershäuser, chief economist at the Nuremberg-based Ifo Institute, which took the lead this year in writing the forecast.

For 2016, the institutes predicted German economic activity to expand by 1.8 percent, as the positive effects of low energy prices "gradually wear off."

The report comes ahead of the government's official forecast to be released next Wednesday, which is also expected to be higher.

The spoils of cheap money

The more upbeat forecast comes after the European Central Bank (ECB) has launched a massive asset buying program, called quantitative easing (QE), in which it is pumping 1.1 trillion euros ($1.2 trillion) into EU financial markets by the end of 2016 to stimulate the eurozone economy.

Unlike Greece, which didn't qualify for cheap ECB funding, economically sound eurozone members like Germany stand to benefit from the cash injection.

The economic research institutes also predicted that the German unemployment rate - already among the lowest in Europe - would further decline, from 6.7 percent last year to 6.3 percent in 2015, and 5.9 percent in 2016.

With regard to inflation, the researchers expect currently low consumer prices to rise only slightly by 0.5 percent this year and by 1.3 percent in 2016.

Germany's current account surplus - meaning the difference between imports and exports - should continue to rise, they said, reaching a new record of about 256 billion euros ($272 billion) this year - 8.5 percent of annual economic output.

As a result of higher growth, the institutes forecast healthy government finances, with a public surplus of 21 billion euros this year, up from 18 billion euros in 2014. Next year, the surplus in the budget is projected to increase to nearly 26 billion euros.

uhe/sgb (dpa, Reuters, AFP)

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