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Research institutes say Germany, Europe's biggest economy, should see renewed growth this year

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FRANKFURT AM MAIN, Germany - Germany's economy is bouncing back from a downturn at the end of last year, according to the country's leading economic research institutes.

In their twice-yearly report released Thursday, the institutes said Europe's biggest economy should see growth, moderate inflation and fewer unemployed this year. Fears that market turmoil from the eurozone debt crisis will flare up again and hurt Germany have lessened. And companies are well-positioned to export products such as cars and machinery to emerging markets.

The institutes foresee unemployment falling to an average of 6.7 per cent for 2013 from 6.8 per cent in 2012. Inflation is expected to remain moderate, at 1.7 per cent, while the government budget should be balanced.

The German economy shrank 0.6 per cent in the fourth quarter of last year but many economists think it is returning to growth. A recovery in Germany will be a key factor for the wider group of 17 countries that use the euro as it struggles to emerge from a recession. The European Central Bank forecasts the currency union's economy will shrink 0.5 per cent this year and only start a gradual recovery later in the year.

Despite their mostly upbeat outlook, the German institutes trimmed their growth forecast for this year to 0.8 per cent from an earlier forecast last of 1.0 per cent issued last October. Their report said that the reduction was largely due to the drop in output during the last quarter of 2012.

For 2014, the institutes predicted stronger growth of 1.9 per cent.

The improvements in the economy should help the German government balance its budget this year, after a small surplus last year. Higher growth helps public finances because tax revenues from company and individual earnings are stronger, and because there are fewer outlays for unemployment benefits and other social welfare payments.

Moody's Investors Service, the ratings agency, on Thursday reaffirmed Germany's triple-A credit rating, but with a negative outlook. The agency said that high productivity growth, moderate wages and global demand for German products will support the economy. However Moody's sees only 0.4 per cent growth this year.

The main reason for the negative outlook for the prized triple-A rating was the chance of disruption from the eurozone government debt crisis, including the chance that one of the member countries might leave the euro. A euro departure would likely spread financial turmoil as investors flee the departing country.

A triple-A rating enables a country to borrow money at the lowest rates in the bond market, helping its government finances.

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