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Bundesbank upbeat on German growth outlook

[FRANKFURT] The German central bank or Bundesbank on Friday said it was upbeat about the outlook for expansion in Europe's biggest economy, upgrading its growth forecast for 2017.

"The Bundesbank's economists expect Germany's real gross domestic product (GDP) to grow by 1.7 per cent this year, followed by a rise of 1.8 per cent in 2016 and 1.7 per cent in 2017," the central bank said in a statement.

The forecasts for 2015 and 2016 are unchanged from the bank's earlier projections, while it had been pencilling in growth of 1.5 per cent for 2017.

"The German economy is currently following a growth path that is primarily underpinned by domestic demand," the statement said.

"The main drivers are the favourable labour market situation and substantial increases in households' real disposable income, though foreign trade is currently being hampered by frail demand from the emerging market economies," said Bundesbank chief Jens Weidmann.

"But with export markets outside the euro area expected to rebound and economic growth within the euro area gaining a little more traction, the healthy underlying state of the German economy should stand out even more clearly over the next two years," Weidmann said.

Despite the expansionary effect which migration was having on the labour supply, "the labour market will experience shortages to a growing extent, driving up wage increases," it said.

Turning to the outlook for public finances, the central bank said Germany's general government budget was expected to post "a higher surplus in the current year and record a more or less balanced fiscal outcome in 2016 and 2017."