German economic expansion will be stronger than previously expected this year, the HWWA economic research institute forecast today.
The Hamburg-based think tank raised its 2006 growth forecast by half a percentage point to 2.1 per cent.
It said it expected GDP growth to slow to 1.1 per cent next year, a tenth of a point better than it had forecast in mid-July.
"We still assume that there will be a clear economic slowdown next year due to the drastic increase in value added tax and other restrictive measures in Germany," it said.
The government is planning to raise VAT by three percentage points to 19 per cent from January 1st 2007 to help shore up Germany's strained public finances and cut non-wage labour costs.
In July, the institute saw 2006 growth at 1.6 per cent. The HWWA forecast private consumption would contract next year by 0.3 per cent after rising by 0.8 per cent this year.
The institute also saw export growth slowing in 2007 to 5.4 per cent from 9.6 per cent this year.