BERLIN The German economy will rebound more strongly than previously expected in the fourth quarter and this growth momentum will carry through into 2017, one of Germany's leading forecasting groups said on Friday.
The projection, by the Ifo Institute, comes after the quarterly growth rate halved to 0.2 percent in the third quarter because exports to major trading partners weakened.
A recent jump in industrial orders and upbeat sentiment surveys have, however, indicated a rebound in the last three months of the year.
"All signs point to a fourth quarter that is stronger than had been expected until now," Ifo President Clemens Fuest said in a statement. "We'll take this impetus into the new year."
The Ifo institute slightly raised its growth forecasts for the German economy to 1.5 percent in 2017 and 1.7 percent in 2018. That was an extra 0.1 percentage points for each year.
This is slightly higher than the predictions of analysts polled by Reuters. tmsnrt.rs/2e7JFpt
For this year, Ifo confirmed its growth prediction of 1.9 percent, which would be the strongest in five years, propelled by soaring private consumption and higher state spending.
"The change of growth pace from 2016 to 2017 is only due to a lower number of workdays," Fuest said.
Germany's strong domestic demand is helped by record-high employment, rising real wages and low borrowing costs.
Ifo expects the German labour market to expand further, with employment levels reaching new record highs at 43.8 million in 2017 and 44.2 million in 2018 after 43.5 million this year.
The institute predicts unemployment to remain stable at 2.7 million despite the influx of more than one million migrants since the beginning of 2015, meaning the social costs for the state could turn out to be lower than originally feared.
Ifo said inflation would bounce back in Germany as past oil price drops are being knocked out of the base figures. It expects the national inflation rate to climb to 1.5 percent in 2017 and 1.7 percent in 2018 after 0.5 percent this year.
Fuest said the German inflation rate was close to the European Central Bank's policy target of almost 2 percent.
"Since a similar development is also expected for the euro zone, the ECB should speed up the exit from the bond-buying programme," Fuest said.
The ECB trimmed back its asset buys in a surprise move last week but promised protracted stimulus to aid a still fragile recovery, dismissing any talk of tapering the programme away.
(Reporting by Michael Nienaber; Editing by Michelle Martin/Jeremy Gaunt)