German economy predicted to grow more than 2%

Germany's economy will grow significantly faster this year than previously forecast, boosting the eurozone's fragile economic recovery even as a surge in exports will increase the country's controversial current account surplus.

Europe's biggest economy will expand 2.1 per cent this year, compared with the 1.2 per cent projected, and 1.8 per cent in 2016, according to a survey published by the country's leading economic institutes on Thursday.

The oil price fall and rising wages are putting money in German consumers' pockets, while the weak euro is aiding the country's exporters, the economists said.

However, Germany's current account surplus will rise to 8.5 per cent of GDP from 7.8 per cent last year, again breaching the European Commission's recommended upper threshold of 6 per cent.

Germany has attracted criticism from the US Treasury for its surplus, which reached an unprecedented level last year.

Policy makers fear the imbalance between Germany and weaker peripheral economies is destabilising for the eurozone.

Ferdinand Fichtner of DIW Berlin, one of the institutes that published the report, said criticism of Germany's export strength was "inappropriate".

Germany's current account surplus would be diminished as companies invest and imports grow, he said.

Mr Fichtner said: "When more is invested in Germany, we will import more - simply because parts of machinery must be built abroad - and that will contribute to a reduction of the current account surplus."

The economists' forecast is more upbeat than the German government forecast of 1.5 per cent GDP growth in 2015.

When the previous economists' forecast was made, the German economy was weak. A dip in confidence caused by the conflict in Ukraine and poor manufacturing data had led to speculation of a recession in the eurozone's largest economy.

Since then, economic conditions have improved. However, some still view expectations of growth of 2.1 per cent this year as too optimistic.

"Higher wages are reducing firms' profitability and that will impact capital spending," said Jorg Kramer, chief economist at Commerzbank who expects growth of 1.8 per cent this year. "A fall in demand across several emerging markets, including China, also weakens the outlook for German exporters."

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