Germany Ups 2006 Growth Forecast To 1.6%

The German government has upgraded its growth forecast for the current year to 1.6% from a previous prognosis of 1.4%, the economy ministry announced on April 28. The higher government forecast is more in line with the predictions of many other experts who are becoming more optimistic on the outlook for the eurozone's biggest economy.

On April 27, Germany's six leading economic research institutes published their latest forecast, which put gross domestic product (GDP) growth at 1.8% in 2006, double the 0.9% recorded in 2005.

The government is penciling in an acceleration in the recovery momentum this year," the ministry wrote in a statement, pointing to higher company profits, rising investment, the low level of interest rates and a pick-up in the construction industry for the first time in 10 years.

While first-quarter GDP figures are not scheduled to be published until next month, the ministry said growth was "fairly solid" in the period from January to March. Nevertheless, the rebound may prove relatively short-lived because of plans by the government under Chancellor Angela Merkel to raise value-added tax to 19% from 16% at the beginning of next year. The government and the six institutes are forecasting growth of just one percent in 2007 as a direct effect of the VAT hike.

Copyright Agence France-Presse, 2006

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