Leading German economists raised their growth forecast for this year to 1.8 per cent today.
They cited strong exports and long-awaited signs of higher consumer spending but warned that growth will slow again in 2007.
The improved outlook coincides with a government report showing that the jobless rate dropped to 11.5 per cent in April - although the Federal Labor Agency warned that it did not yet signal a job market recovery.
The 2006 outlook by six economic institutes compared with a prediction of 1.2 per cent growth in their last semiannual report in October.
For next year, they forecast that gross domestic product growth will slow to 1.2 per cent, due to a planned rise in German value-added tax and a likely easing of world economic growth.
If the economists' prediction for this year holds, it would be the highest growth rate since the economy expanded by 3 per cent in 2000. It still may not be enough, however, to make a serious impact on Germany's persistently high unemployment.
A senior Federal Labor Agency official, Heinrich Alt, said growth of 2 per cent is needed to create jobs. The agency credited this month's cut in the jobless rate from 12 per cent in March to a delayed spring upturn in sectors such as construction and agriculture.
"Despite the positive signals on the job market, an increase in employment is not visible," agency head Frank-Juergen Weise said. In April, 4.79 million Germans were registered as jobless.
The economists said German exports, long the backbone of the economy, would expand "strongly" this year. "In addition, domestic demand is also gaining pace," their report said.
Persistently stagnant consumer spending likely will improve thanks in part to gradually falling unemployment, they said. They forecast an average jobless rate of 10.6 per cent this year and 10.2 per cent in 2007, compared with 11.2 per cent in 2005.