The German central bank said in its twice annual outlook that it expected gross domestic product (GDP) to expand 1.9 percent in 2010, versus the 1.6 percent it had predicted in December.
Next year, the economy is seen growing 1.4 percent, against the 1.2 percent previously forecast.
“The main drivers will initially be exports and stimuli from the inventory cycle, whereas the importance of government stabilisation measures will gradually wane,” the Bundesbank said, referring to stimulus efforts taken last year to fight Germany’s worst recession since World War II.
“In the medium term, business investment will pick up, and private consumption, too, is likely to increase again.”
The Bundesbank said that it saw the risk to German economic growth posed by fears over other eurozone countries defaulting on loans as “limited.”
“However, this depends on credible measures being taken to achieve sustained fiscal consolidation,” it said.
“Apart from that, it is conceivable that the German economy could benefit from the global recovery to a greater extent than is assumed here.”
The German government has forecast 1.4 percent growth this year and 1.6 percent in 2011.
The Bundesbank said the country could see a slight uptick in unemployment in the next two years but noted that the German job market had weathered the economic crisis well.
“The official unemployment figure in 2011 could be 3.4 million, which is equivalent to an unemployment rate of 8.0 percent,” it said.
German joblessness in May fell to 7.7 percent of the workforce.
On inflation, the central bank said that higher oil prices and the depreciation of the euro could cause a moderate rise in consumer prices of 1.2 percent in 2010 and 1.6 percent in 2011.