* Institutes see 2013 growth of 0.8 pct, 1.9 pct in 2014
* Say ECB rate cut would delay structural re-adjustment
(Adds details, quotes, background)
By Sarah Marsh
BERLIN, April 18 Germany's leading economic
institutes said on Thursday domestic demand would drive a 0.8
percent expansion in Europe's largest economy this year and that
this would more than double to 1.9 percent in 2014 as exports
The institutes also said that while it may seem appropriate
for the European Central Bank to cut interest rates, given weak
regional growth, this would only serve to delay necessary
restructuring in the banking sector.
"An upwards tendency re-emerged in the German economy in
spring 2013," the institutes said in their twice-yearly report,
which flows into the German government's own economic forecasts.
The institutes said the downward revision to 2013 growth
from the forecast of 1.0 percent made last October reflected the
need for the economy to catch up this year after contracting in
the fourth quarter of 2012. This statistical effect masked the
true strength of German growth, they said.
Germany's economy, long resilient to the euro zone crisis,
slowed in 2012 and output shrank by 0.6 percent in the final
quarter. But economists expect it to avoid recession and to have
returned to weak growth in the first three months of this year.
The institutes' forecast was still double that of Chancellor
Angela Merkel's government, which sees the economy growing by
0.4 percent this year and 1.6 percent next year. A possible
increase in the official forecasts could further boost support
for Merkel's centre-right coalition in September's election.
The institutes said imports would rise faster than exports
in traditionally export-driven Germany in 2013, which will come
as positive news for European trading partners that are mired in
recession and eager for growth impulses.
Foreign demand will strengthen in 2014 on the back of the
trading partners' improving economies, the institutes said.
The domestic economy will remain "decisive" in the upturn,
as residential construction benefits from low interest rates and
rises in income and a continual decrease in unemployment
bolsters consumer spending, the institutes said.
THREATS TO GROWTH
The institutes said the unemployment rate would inch down to
6.7 percent this year and drop to 6.4 percent next year, in
stark contrast to spiralling joblessness throughout much of the
rest of the euro zone.
They criticised the opposition Social Democrats' proposal
for a minimum wage of 8.5 percent, saying this would harm jobs.
"It is probably that the very high unemployment in France of
nearly 11 percent is due to the size of the minimum wage there,"
France's current minimum wage stands at 9.43 euros per hour.
The institutes said annual inflation would ease to 1.7
percent this year, in line with the ECB's target, picking up to
just above that goal next year at 2 percent.
The institutes were critical of Merkel's government's claims
of consolidating the budget.
They forecast the budget to throw up a surplus of 0.5
percent of gross domestic product next year after being nearly
balanced in 2013, but said this was more due to favourable
economic conditions such as low interest rates than policy.
"It is now time to re-adopt a longer-term approach to
economic policy," the institutes said. "Although structural
adjustment processes implemented in the crisis-afflicted
countries have started to deal with institutional problems in
the euro area, they are far from resolved."
"The German public budget also faces massive long-term
burdens related to demographic factors."
The institutes said it was unclear whether an ECB rate cut
would really stimulate regional growth. "A lower re-financing
rate would above all lead to delaying necessary structural
adjustments," they said.
"The structural problems in the banking sector should be
resolved speedily through financial policy."
The institutes said Europe should aim to ultimately move its
future banking supervision authority to a separate institution
from the ECB so as to keep a clear division between fiscal and
monetary duties - a frequently-aired concern in Germany.
(Reporting By Sarah Marsh, editing by Gareth Jones)