The German economy was expected to grow 3 percent this year due to "favorable" conditions at home and abroad and a strong rebound in the second quarter, its central bank said Thursday.
The Bundesbank said in a monthly report that Germany's "economic upward movement should continue in the second half of 2010" and its real GDP (gross domestic product) would jump around 3 percent, well above the bank's previous forecast of 1.9 percent.
The central bank said Germany had made up more than half its production decline since the outbreak of the international financial crisis.
"Increasing signs are showing that Germany's economic recovery is increasingly self-supporting," the report said. "The fundamental economic situation in Germany is very favorable at the moment."
Figures showed that German exports surged 3.8 percent in June from May, raising the country's trade surplus to the highest level since October 2008. On a year-on-year level, the strong exports climbed 28.5 percent and imports also surged 31.7 percent in June.
The sharp upswing of exports boosted Germany's economic growth to 2.2 percent in the second quarter, the largest recorded for a reunified Germany since 1991.
The surge also powered the 16-nation eurozone to an unexpected growth rate of 1 percent from April to June.
Hit by the global economic crisis, the German economy, Europe's largest, contracted 4.7 percent last year, marking its worst recession since World War II. After an unusually hard and long winter, Germany's pace of recovery began to accelerate in March.
The German government officially predicted in April that the overall economy would grow 1.4 percent this year. Some officials said they might adjust the forecast in October.
German Economy Minister Rainer Bruederle said after the release of second-quarter economic data last week that he believed the growth would be "well above 2 percent" this year.
The Bundesbank also noted "the growth pace will normalize after the extraordinarily dynamic spring," as signs for a slowdown of global production activity and trade "still exits".
Although export growth might slow, the bank believed that Germany's investment and consumer spending would rise due to the fast-paced recovery of the domestic economy and labor market.
Recent data showed hikes in factory orders, industrial production and consumer confidence, while global markets, especially those in Asia, had increased their demand for German goods and services.
Meanwhile, experts estimated that Germany's inflation would remain tame this year. Although Germany's consumer price index (CPI) rose 1.2 percent in July and 0.9 percent in June year on year, it is still far below 2 percent, a threshold for changing monetary policy by the European Central Bank (ECB). ' However, official figures released earlier Thursday showed producer price inflation, an indicator of future inflation trends, jumped 3.7 percent in July from the corresponding month of 2009, as oil and energy prices increased strongly.
The Bundesbank stressed the government should stick to its commitment to reining in its budget deficit, even with the economy exceeding expectations.
The German government pledged to cut 80 billion euros (103 billion U.S. dollars) from its budget over the next four years, the country's largest saving projects since World War II.
Germany also planned to slash its deficit to 4.5 percent of GDP this year and below 2 percent of GDP in 2013, raising some countries' fears, notably the United States, of dragging down the global economic recovery.