Growth forecast for Germany raised

A group of four top economic institutes said in an update from their last forecast published in October that Europe's biggest economy will likely return to more robust growth of 2 percent next year. "The greatest downside risk still remains the European debt crisis, which essentially still remains unresolved," said Kai Carstensen of the Ifo institute. In Germany, low unemployment is making consumers more willing to spend money, the institutes said in their twice-yearly group forecast. Higher consumption and robust growth of domestic investment will be the main driving forces through next year. Unemployment was forecast to fall further, to 6.2 percent by late 2013 from around 7 percent currently. The think tanks also predicted increases in real wages of more than 3 percent in both years, contributing to an inflation rate forecast to average 2.3 percent this year and 2.2 percent in 2013. "Germany is doing well. The German economy is getting back to speed," Economy Minister Philipp Roesler said in a statement. "Rising employment and the positive development of incomes will continue to positively contribute to this trend." Business confidence and willingness to invest have been rising because European leaders have succeeded in calming some of the market turmoil that reigned late last year.

But the institutes warned that the situation remains unstable, citing the high borrowing costs for Spain and Italy as evidence that "the debt and confidence crisis continues to smolder" and remains a risk for the global economy. Eurozone leaders have signed a treaty to limit debt in future and new governments in Italy and Spain have started trimming deficits and taking steps to make their countries more business-friendly.