Germany will grow by 2.6 percent in 2011, Economy Minister Rainer Bruederle told reporters, hiking a previous forecast of 2.3 percent made in January.

The growth rate will slow next year, coming in at 1.8 percent, Bruederle added, leaving Berlin's earlier forecast for 2012 unchanged.

"The recovery in Germany is on a firm footing," Bruederle said.

Germany, the world's second largest exporter after China, suffered a crippling recession in 2009, with its economy contracting by nearly five percent.

But Europe's biggest economy has since staged a storming comeback and last year registered its strongest performance since the country was reunified in 1990.

The dynamic economy is also helping to reduce jobless lines. Average unemployment is projected to be 2.9 million in 2011 and 2.7 million in 2012, according to the forecasts.

"German citizens are benefiting from the recovery via higher incomes and more jobs," the minister said.

The new growth projections put Germany on a much faster growth path than its European neighbours. France is poised to grow by 2.0 percent, Paris estimates, whereas Britain expects 1.7 percent growth this year.

"Germany, due to its earlier reforms, can now enjoy a golden decade of stronger trend growth, more employment and a solid fiscal position," said Holger Schmieding, analyst at Berenberg Bank.

Stronger growth has helped Germany reduce its public deficit faster than it had planned while other euro area countries grapple with ballooning deficits and a debt crisis.

The deficit will creep under the European Union limit of three percent of gross domestic product this year, Berlin announced on Wednesday.

Bruederle also drew attention to the balanced nature of the recovery with Germany becoming less reliant on exports to drive its economic motor.

This would help Europe's powerful juggernaut overcome obstacles on the road ahead, he said.

"Domestic demand is stronger. This makes our economy on the whole more resistant. Given the current trend in commodity prices, the catastrophe in Japan and the ongoing debt crisis in the euro area, this will pay off.

"Our traditional weakness when it comes to domestic demand has been overcome ... given the crisis that is behind us, that is a remarkable and pleasing result," the minister said.

However, despite the bullish forecasts not all is plain sailing, with gathering clouds on the horizon.

Business and investor confidence has dipped in recent months amid concerns over the effects of the devastating Japanese earthquake and tsunami and the ongoing debt crisis in the euro area.

And rising inflation and interest rates also threaten to take a toll on the German economic recovery, analysts say.

Last week, the European Central Bank raised interest rates for the first time since mid-2008 in a bid to contain inflation although ECB president Jean-Claude Trichet said it was not the start of a series of hikes.

Bruederle said he believed the interest rate hike was "appropriate" but added: "I do not see an acute inflation danger."

The government predicted that prices would rise on average by 2.4 percent in 2011 and by 1.9 percent in 2012.

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