The German government on Friday cut its forecast for growth this year to 1.5 per cent and cautioned that surging oil prices posed a threat to its latest predictions.

The revised number came in at the bottom of the government's forecast range of 1.5 to 2 per cent and was lower than the 1.7 per cent figure previously used for budgetary purposes.

Economy minister Wolfgang Clement told a news conference the economy was also likely to grow at around 1.8 per cent in 2005, down from an earlier budgetary estimate of some 2.25 per cent.

"There are obviously a number of current risks for these estimates," Mr Clement said. "In particular, the high cost of oil and raw materials are generating considerable uncertainties."

He added he saw no need for interest rate cuts at present.

Mr Clement said the government was now forecasting average unemployment in 2004 would be only 20,000 lower than in 2003 but that it would drop by almost 100,000 in 2005. He predicted employment could rise by some 150,000 next year.

In a report released on Tuesday, Germany's six leading economic institutes estimated growth would be 1.5 per cent this year and next. They had predicted expansion of 1.7 per cent for 2004 last October. They also predicted the economy would expand too slowly to stop Berlin busting EU budget rules again next year.

Mr Clement said he believed Germany could avoid breaching the EU's 3 per cent of GDP budget deficit ceiling for a fourth successive year in 2005 as growth picked up.

German retail sales fell 0.5 per cent on the month in March, data released on Friday showed, in a renewed sign consumer confidence is still struggling to recover after private spending fell the past two years.

Figures due next week, including April unemployment and March industrial orders and output, will give further indications of the state of Germany's tentative recoveryfrom three years of stagnation. - (Reuters)