Germany has increased its economic forecast for this year but trimmed its 2005 forecast, blaming rising oil prices, which reached new highs yesterday before easing later in the day.

Germany's new growth forecast of 1.8 per cent this year and 1.7 per cent in 2005 comes amid worries about a new €5 billion hole in Germany's tax estimates.

"The economic recovery will continue next year [but] the increase in energy and commodities prices is having a dampening effect," said German Economic and Labour Minister Mr Wolfgang Clement yesterday.

He said that rising oil prices had shaved "just under 0.25 per cent" off German growth this year, and warned that world economic growth was at risk if oil prices stayed above $50 a barrel.

The revised forecast was made as the European Central Bank (ECB) and the World Trade Organisation warned about the impact of higher oil prices.

ECB president Mr Jean-Claude Trichet said that high oil prices could dampen the strength of economic recovery in the 12-nation euro zone and globally.

Any new slowdown in the German economy prompted by high oil prices would hamper Berlin's hopes of bringing its budget deficit under the 3 per cent ceiling of the Stability and Growth Pact, after three years of missing the mark.

Berlin's warning about the negative economic effects of rising oil prices came as the cost of a barrel fell following an earlier rise above $55 a barrel.

The drop came after the Norwegian government used emergency laws to break the strike of workers on mobile oil rigs that produce around 55,000 barrels a day.