The German economy will shrug off an increase in value-added tax in January and grow by at least 2 per cent in 2007, Deputy Economy Minister Bernd Pfaffenbach said today.
The three-point VAT hike to 19 per cent would lead to a dip in growth but would not be a danger for the economy, he said. "The VAT hike has been practically absorbed," he added.
The comments from Mr Pfaffenbach were the most optimistic to date from an official from Germany's ruling coalition.
The government's current growth forecast for 2007 is 1.4 per cent, which was set at the end of October. A number of leading economic institutes have raised their growth forecasts for 2007 recently.
The Ifo, IfW and RWI institutes revised their 2007 forecasts last week for the economy to expand by between 1.9 per cent and 2.1 per cent.
In 2006, Europe's largest economy is expected to grow by 2.5 per cent or more, driven by surging exports, strong investment and a recovery in sectors such as the construction industry, which had been mired in recession for nearly all of the past decade.
The International Monetary Fund recently raised its forecast for 2007 German growth to 1.5 per cent from a 1.3 per cent prediction set in September.