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BERLIN, June 20 (Reuters) - The Ifo economic institute raised its 2017 growth forecast for the German economy to 1.8 percent from 1.5 percent previously, with vibrant domestic demand and strong export growth propelling employment levels to historic highs.
"We're experiencing a first half which is so strong that the impetus will carry on into the coming year," Timo Wollmershaeuser, head of economic research at Ifo, said in a statement on Tuesday.
"The upswing is being driven by the domestic economy, especially construction and consumption," he added. "But now we have industry too. The improving economies of the euro zone and the rest of the world are significantly boosting exports."
For 2018, the institute now predicts Germany's gross domestic product (GDP) will expand by 2.0 percent, up from the 1.8 percent it had predicted previously.
It expected there to be 44.2 million people employed this year, an all time high, compared to 43.6 million last year. That would be coupled with higher inflation, reaching 1.7 percent this year and 1.6 percent in 2018, compared with 0.6 percent in 2016.
The improved outlook chimes with the projections of Germany's central bank, which has raised its growth forecasts for the German economy to a workday-adjusted 1.9 percent in 2017 and 1.7 percent in 2018.
Still, Economy Minister Brigitte Zypries said in a Reuters interview last week that the government was sticking to its more cautious growth outlook for Europe's biggest economy despite solid economic data and upbeat sentiment indicators.
The government said in April that it expected an economic growth rate on a non-adjusted basis of 1.5 percent in 2017 and 1.6 percent in 2018. (Reporting by Michael Nienaber and Thomas Escritt, editing by Michelle Martin)