Berlin: Germany's economy is headed for recovery this year, driven by demand in China and emerging markets for German products such as cars and machinery, eight leading economic institutes said in their twice-yearly outlook.

Europe's biggest economy will expand 1.5 per cent in 2010 and 1.4 per cent in 2011, the institutes said in a report released in Berlin yesterday, raising an October forecast of 1.2 per cent growth this year. The budget deficit will widen from 3.3 per cent of gross domestic product in 2009 to 4.9 per cent this year before shrinking to 4.2 per cent in 2011, they said.

"Orders rose strongly at the start of the year and exports continue to recover," the institutes said. "Companies are more confident about the future."

German companies are stepping up output to meet reviving global demand after the worst recession since at least Second World War, bolstering a recovery from stagnation in the fourth quarter. German exports rose the most in eight months in February as a strengthening global economy boosted companies' orders.

Exports

China's economic growth accelerated to 11.9 per cent in the first quarter, the fastest pace in almost three years, the statistics bureau said at a briefing in Beijing yesterday. China accounted for 5 per cent of German exports in the second half of last year and will overtake the US as the main overseas export market within three years, UniCredit MIB says.

"The recovery continues to be driven by exports, which posted a surprisingly strong slump in the recession," the institutes said. "They're benefiting from a lively expansion especially in emerging economies."

While government spending is boosting economic growth this year, measures to rein in the budget deficit will weigh on the expansion from 2011, the institutes said. Even so, Germany's unemployment rate will decline to 7.6 per cent in 2011 from 7.8 per cent this year.

"The labour market has proven to be surprisingly robust since the beginning of the recession," the institutes said. Even as economic growth stays below the economy's potential, unemployment will decline "because the pool of workers declines as a result of demographic developments," they said.