Germany raises growth forecasts

The economy is now set to grow by 2.3% this year and 1.4% in 2007, the Economy Ministry said. Its earlier targets were 1.6% and 1% respectively.

Germany "is currently in a phase of strong growth", Economy Minister Michael Glos said.

Should Germany meet its targets, it would be the fastest growth since 2000.

The economy, Europe's largest, grew by 0.9% in 2005.

"This upswing is perceptible in the labour market and does not threaten price stability," said Mr Glos.

However, one area of concern is that while domestic demand has picked up, consumer spending is still looking sluggish.

The government plans to introduce a higher 19% rate of value-added tax in January.

Analysts say that while that may boost spending in the run-up to Christmas as consumers try to avoid the extra costs, it may dampen demand after that.