Germany issued its highest growth forecast in six years yesterday, but concerns remain about how sustainable the improved economic prospects are.
German finance minister Peer Steinbrück said new borrowing in 2006 may be "even more favourable" than the prediction of 2.6 per cent of gross domestic product (GDP) reported to Brussels, as the economics ministry raised its 2006 growth forecast to 2.5 per cent yesterday.
Meanwhile Germany's economic "wise men" are expected to round up their economic forecasts for 2006 and 2007 to between 2.3 and 2.4 per cent in their autumn report tomorrow.
A note of uncertainty runs through all the economic forecasts however, generated by the government's decision to raise VAT by three points to 19 per cent in January.
Analysts are divided about whether the mini-boom it has prompted - as consumers make large purchases now to save the VAT - can be sustained next year.
Mr Steinbrück, a Social Democrat member in the ruling grand coalition with the Christian Democrats, said yesterday he thought the possible negative effects of the tax increase had been over-rated.
"My conclusion is that it won't be as dramatic as was debated in advance," he told a foreign correspondents' briefing in Berlin. "It's dependent on how much of that increase will be passed on. Already the first German companies are advertising that they won't pass the increase on to consumers."
Economics minister Michael Glos backed up that view, rounding up his growth forecast to 2.5 per cent with the remark that the German economic recovery has "two solid legs - export and domestic consumption".
