Berlin  -  Germany's key economic institutes said Thursday they had revised down their growth outlook for Europe's biggest economy as the ripples from the US housing market crisis continue to spread around the world.

Instead of a previously forecast 2.2 per cent, the eight institutes are forecasting in their twice yearly report that German economic growth will come in at 1.8 per cent in 2008 before slowing to 1.4 per cent in 2009.

"The negative effects of developments abroad will gradually filter through over the course of the year," said Joachim Scheide, an economist at the Kiel-based IfW institute, one of the institutes which drew up the report.

But the institutes believe that the impact on world economic growth from the shakeout in the US subprime mortgage market could be limited.

In particular, this is the result of robust state of non-financial corporate sector, the impulse from the US economic stimulus package and the continuing strong demand from the world's leading emerging economies.

The institutes expect growth in these economies, which include China, India as well as Latin America and Eastern Europe to come in at a solid 6.5 per cent this year and 6.1 per cent in 2009, down from 7.8 per cent in 2007.

The institutes also see global economic growth slipping back a gear from 3.6 per cent in 2007 to 2.7 per cent in 2008 and 2.9 per cent next year with the current nervousness on global financial markets also easing.

A pickup in the world economy would also give fresh momentum to Germany's key export machine, the institutes argue.

The institutes' projections are more optimistic than the forecasts drawn up by private economists many of whom believe that Germany will be lucky to chalk up an economic growth rate this year of 1.4 per cent.

The German economy grew by 2.5 per cent last year after it emerged from a protracted period of stagnation in 2006 to report a 2.9 per cent expansion rate.

Despite rising consumer prices, higher pay settlements combined with a continuing improvement on the German labour market will mean private consumption emerges to play a stronger role in underpinning economic growth in the country, the institutes say.

However, while German economic growth is forecast to slip back a gear in the coming months, the institutes predict the numbers out of work will fall below 3 million next year for the first time since 1991 and the economic boom triggered by Germany's historic unification.

Data released in the run-up to the publication of the institute's report showed inflation creeping up in both Germany and across Europe on the back of higher food and energy prices.

While Germany's statistics office said that European Union harmonized inflation in Germany jumped to an annual 3.2 per cent in March from 2.9 per cent in February, the European Union statistics office revised up the annual inflation rate in March in the 15-member eurozone to 3.6 per cent.

This is well above the European Central Bank's 2-per-cent annual inflation target.

With the ECB talking tough on interest rates in the face of resurgent inflationary pressures, the euro has climbed to a record high just short of 1.60 dollars after the release of the consumer price data.

At the same time, the institutes said German inflation will come in at 2.6 per cent this year.

However, like many analysts, the institutes are predicting inflationary pressures to ease as the year unfolds with consumer prices in Germany slowing to 1.8 per cent in
2009.

Apart from the Kiel economic institute, the think tanks presenting the report Thursday included the Rheinisch-Westfaelisches Institut fuer Wirtschaftsforschung (RWI), the Institut fuer Wirtschaftsforschung Halle (IWH) and the Institut fuer Wirtschaftsforschung (IFO). (dpa)