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Growth

Economic research groups predict strong upswing for Germany

Germany’s leading economic research institutes have forecast a strong rise in growth for the country’s economy, driven by robust domestic consumption. The upswing, however, is facing headwinds from government policies.

Germany is on the verge of a strong economic upswing, that will drive gross domestic product (GDP) 1.9 percent higher in 2014 and 2 percent in 2015, the country's four leading economic research think tanks said on Thursday.

In their joint annual spring economic forecast, research groups DIW, Ifo, IWH and RWI said that growth was being driven primarily by robust domestic demand.

"Although demand from emerging economies is now less lively, the economy is recovering in the rest of the euro area, which is Germany's most important market," they added, referring to a prediction that exports to countries outsde of the zone Europe would remain subdued in 2014.

As a result, employment would further improve, they also said, causing the jobless rate to drop to about 6.7 percent on average in 2014 from a current rate of 7.1 percent. Moreover, the upswing would lead to higher state revenue.

In 2013, Europe's largest economy grew only at a rate of 0.4 percent, weighed down by the recession in the euro currency area and sluggish global demand. Unlike most of its eurozone partners, however, Germany was able to maintain stable employment and sound state finances.

As downside risks to the nascent upswing, the four research groups mentioned a further escalation in the Ukraine crisis resulting in higher energy prices or even energy shortages. Moreover, plans by the government to introduce a national minimum wage of 8.50 euros ($11.7) for an hour of work were viewed skeptically.

The institutes estimated that a minimum wage would cost around 200,000 jobs after its introduction in 2015, primarily among unskilled and low-paid workers. In addition, government plans to allow people with 45 years on the job to retire at the age of 63, and Germany's renewable energy policy were criticized as less conducive to growth.

uhe/pfd (Reuters, dpa, AP)

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