German economy 'to grow quicker'

Germany's manufacturing sector is on the up, boosting the economy

Growth in the German economy, Europe's largest, is set to accelerate next year, lifted by exports and stronger investment, a report has said.

According to the Ifo research institute, gross domestic product (GDP) will expand by 1.7% next year, compared with an earlier forecast of 1.2%.

Growth also is set to improve in 2005, hitting a higher-than-expected 0.9%.

Germany is emerging from a slowdown and the report is the latest to suggest the recovery is becoming more sustainable.

"The economy really is picking up," said Hans-Werner Sinn, president of the Munich-based research group.

"After five years, there are clear signs that the economic lull has been overcome."

'Future developments'

Concerns still exist, however, and producer prices surged to a 23-year high in November - driven by oil prices and energy costs.

The federal statistical office said on Monday that producer prices climbed by 5% in November from the same month a year earlier.

The monthly rate was less worrying, declining by 0.1% in November from October.

Analysts said that the European Central Bank (ECB) may be forced to raise interest rates should inflationary pressures not diminish in coming months.

The ECB raised its benchmark borrowing cost for the first time in five years earlier this month, adding that while it was not the first in a series of hikes, the bank would take action should it need to.

Ifo said it expects the ECB to increase interest rates by a quarter of a percentage point in the middle of next year.

The ECB's benchmark rate currently stands at 2.25%.

Bernd Weidensteiner, an economist at DZ Bank, said that the ECB will "certainly be keeping a close eye on future developments".