German GDP will likely grow by 1.8 per cent this year and by 1.4 per cent in 2007, the DIW think tank said today.
The Berlin-based research institute had previously forecast the economy would grow by 1.5 per cent in 2006 and by 1 per cent next year.
"Unlike before, the economy is now also getting support from a stronger domestic economy, which will even make a slightly bigger contribution to growth than exports, which continue to be highly dynamic," the institute said in a report.
Domestic demand in Germany has been boosted by a pick-up in private consumption as well as ongoing investment in plant and equipment, DIW said.
A looming sales tax increase of three percentage points to 19 per cent at the start of 2007 has had an impact too, prompting shoppers to spend their money ahead of time, DIW added.
"Economic growth is not only rising, but also broadening," the DIW said. The DIW forecast is now more upbeat than that of the government, which has forecast GDP growth of 1.6 per cent in 2006 and of around 1 per cent next year.
Sluggish private consumption, which accounts for some 60 per cent of GDP, and stubbornly high unemployment has hindered growth in Europe's largest economy in recent years.