Export demand is spurring German economic growth

Driven by strong exports and growing retail spending, the new figure is an increase on the German government's previous growth prediction of 1.7%.

The stronger growth is expected despite the current euro strength, and Germany raising value added tax in January.

A separate report showed that German business confidence rose in March for the second month in succession.

The closely-watched business climate index from the Munich-based Ifo economic research institute rose to 108.6 points in April from 107.7 in March.

It found that firms in all sectors of the economy had increased confidence, with the exception of the construction industry, where sentiment was flat.

'Self-sustained upswing'

Andreas Rees, analyst at UniCredit in Munch, said that "robust export growth" was having the knock-on effect of boosting domestic demand.

"The odds are high that the German economy is currently embarking on a self-sustained upswing," he said.

The euro is currently close to record highs against the dollar, following concerns regarding the strength of the US economy, where the housing market has seen a sharp downturn.

Germany raised value added tax (VAT) in January from 16% to 19%, in a move aimed mostly at keeping the country's budget deficit in check.

Ifo, which surveys 7,000 companies each month, comes to its figure by asking firms to rate the current business situation and their expectations for the next six months.