German Bank Says Recovery On Track

Germany's economy will grow 1.6 percent next year and 1.2 percent in 2011, country's central bank predicted, noting outlook has 'brightened perceptibly.'

BERLIN (AP) -- Germany's economy will grow by 1.6 percent next year and a more modest 1.2 percent in 2011, the country's central bank predicted Friday, declaring that the outlook has "brightened perceptibly" over recent months.

The Bundesbank's report came as lawmakers approved the first part of an effort by Chancellor Angela Merkel's new government to stimulate growth in Europe's biggest economy through tax relief.

Germany's export-fueled economy emerged from recession in this year's second quarter. The Bundesbank said that "prospects for the German economy have brightened perceptibly in the last few months."

It forecast that the economy would shrink by 4.9 percent this year before returning to growth in 2010.

The Bundesbank outlook is a little more optimistic than the government's official forecast, which calls for the economy to grow by 1.2 percent next year after contracting by 5 percent in 2009. The government forecast, made in mid-October, did not include an estimate for 2011.

Merkel's center-right government plans to cut and reform income tax starting in 2011 in a bid to stimulate growth, although those plans remain vague.

On Friday, the lower house of parliament approved by a 322-246 margin a first package of measures aimed at stimulating the economy.

The so-called "growth acceleration bill" includes adjustments to corporate tax rules, a cut in the value-added tax rate for hoteliers to 7 percent from 19 percent, and an increase in child benefits.

The government anticipates that it will translate into total tax relief of some €6.1 billion ($9.2 billion) next year and €8.5 billion per year after that.

The package still needs approval Dec. 18 in parliament's upper house, which represents Germany's 16 states. Some state governors in Merkel's party so far are resisting the plans, citing concerns over the effect on their budgets.

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