Institutes raise German 2012 GDP forecast

BERLIN (AP) — Leading economists have raised their forecast for growth in Germany despite the ongoing European debt crisis.

A group of top economic institutes have improved their outlook for this year to 0.9 percent growth in economic output from 0.8 percent in their last outlook in October.

In their twice-yearly group forecast released Thursday, they said low unemployment was making consumers in Europe's biggest economy more willing to spend money. Meanwhile, business confidence and willingness to invest was rising because European leaders have succeeded in calming some of the market turmoil that reigned late last year.

However, they warned that the crisis over eurozone governments with heavy debts "continues to smolder" and that Germany was still not doing enough to reduce its own debt load of over 80 percent of gross domestic product.

Eurozone leaders have signed a treaty to limit debt and new governments in Italy and Spain have started trimming deficits and taking steps to make their countries more business-friendly. More support came from the European Central Bank, which made €1.1 trillion ($1.4 trillion) in cheap loans to banks in December and February. That step removed fears of bank failures and made it easier for indebted governments to keep borrowing.

The institutes said that high borrowing costs for Spain and Italy show that "the debt and confidence crisis continues to smolder" and remains a risk for the global economy.

They forecast growth of 2.0 percent for 2013. Inflation was foreseen at 2.3 percent this year and 2.2 percent in 2013.