BERLIN - Germany on Wednesday trimmed back its economic forecast for this year but insisted Europe's top economy remained "in good shape", with the refugee influx likely to boost short-term domestic demand.
The Germany government says the refugee influx is likely to boost short-term demand
In its annual economic report, the government said it expected gross domestic product (GDP) to expand by 1.7 percent in 2016, fractionally below an earlier forecast of 1.8 percent.
"The German economy is fundamentally in good shape," the report said.
Economy Minister Sigmar Gabriel, presenting the report, said the country's economic situation was "positive and will remain so".
And in order to make sure it does, "we will have to invest more," said Gabriel, who is deputy chancellor.
He said that given low oil prices, the weak euro and interest rates that are close to zero, growth of 1.7 percent was "not exceptional, but averagely good."
The government's forecast is in line with that of the International Monetary Fund, but slightly lower than the 1.9 percent predicted by the German industry federation BDI.
The main economic impulses "are currently coming from private household and state spending, as well as housing construction," the government report said.
"The large influx of refugees is contributing to this," it added. Nearly 1.1 million asylum seekers arrived in Germany in 2015.
The government noted that the German economy has also felt the pinch from the slowdown in developing economies such as China.
"The upward trend tailed off in the second half of 2015," the report said.
"Slowing growth in developing economies dampened exports and corporate investment. However, at the end of the year, industrial demand gathered momentum once more. Corporate sentiment improved and the favourable trend on the labour market continued."
According to a preliminary estimate by federal statistics office Destatis earlier this month, GDP expanded by 1.7 percent in 2015, fractionally above the 1.6 percent recorded in 2014.
At the same time, Germany clocked up a public budget surplus of 16.4 billion euros ($17.8 billion), equivalent to 0.5 percent of GDP and the second year in a row that Germany's state finances have been firmly in the black, Destatis said.
The government said it hoped for another budget surplus this year.
- Refugees won't raise jobless numbers -
Turning to the anticipated economic effects of the wave of asylum seekers, the government said it did not expect it to lead to a rise in the jobless numbers just yet, at least while asylum applications were being processed.
Their arrival "will not have much of an effect on the labour market in the early months of the year," the report said, but added that welfare spending was expected to increase sharply.
But it argued that, "together with the reduction in income tax burdens, this will increase disposable incomes".
"Private household consumption and investment in housing construction will be expanded tangibly. And state spending will remain dynamic as a result of the influx of refugees," it said.
Experts believe the newcomers will help boost domestic demand in the short term, but say the long-term economic consequences depend on how quickly and effectively the refugees are integrated into the labour market.
Last month, the German central bank, or Bundesbank, said many of the new arrivals could initially find it difficult to get a job because on average they are young and many lack qualifications.
But a survey of German small and medium-sized enterprises revealed that more than half of companies believe the mass influx could help alleviate the country's shortage of qualified labour, and most said they were willing to hire refugees.