German economic growth to accelerate

Berlin - German economic growth will accelerate this year to 1.8% and pick up again next year, the economy ministry said on Tuesday, although a closely watched survey showed Ukraine is weighing on the outlook for Europe's largest economy.

Germany's economy, which powered ahead during the early years of the euro zone crisis, expanded just 0.4% in 2013, when exports struggled and some firms held back on investment.

The ministry stuck to its February forecasts, saying the pace of economic growth would accelerate to 2.0% in 2015.

"The German economy is experiencing a solid upswing. Germany has two good years ahead of it," Economy Minister Sigmar Gabriel said.

He made clear however, that any escalation of the crisis in Ukraine would affect the outlook.

Domestic demand will drive growth, climbing by 1.9% this year and by 2.1% next year as households spend more and investment in construction and equipment rises, the ministry said.

Some workers have secured strong pay hikes in wage negotiations and a strong labour market, moderate inflation and low interest rates are encouraging Germans, traditionally a nation of savers, to splash their cash.

The ministry said wages would rise this year and next while the unemployment rate would fall to 6.7% this year and 6.6% in 2015.

That puts Germany in a different league to struggling euro zone states like Greece and Spain, where more than one in four people are out of work.

Higher domestic demand in Germany should help struggling euro zone states export their way out of the crisis and therefore reduce some of the region's economic imbalances.

The ministry estimated that Germany's own exports would gain traction this year with 4.1% growth thanks to an improving euro zone environment. It said they would increase by 4.6% in 2015.

But it saw imports increasing by a stronger 4.7% this year and by 5.1% in 2015, meaning foreign trade will not contribute to gross domestic product (GDP) growth this year and will add just 0.1 percentage points next year.

That should help lower Germany's persistently high current account surplus, for which it has been widely criticised, including by the US administration.

But the picture of the German economy is not entirely rosy - a ZEW survey published on Tuesday showed German analyst and investor sentiment falling for the fourth month in a row in April due to the crisis in Ukraine.

There are other concerns too. Leading economic institutes have said policies the new left-right government is pursuing such as a nationwide minimum wage and pension reform allowing some employees to retire at 63 will dampen growth.

The ministry's analysis flows into Germany's tax estimates, which are due to be published in May.