Berlin  - The strong euro, record high energy prices and financial market turbulence have resulted in Germany's key economic institutes revising down Thursday their growth outlook for Europe's biggest economy.

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.

But while the institutes will say they expect a slowing economic expansion rate and higher inflation, they are also expected to add that the nation's economy remains in robust shape.

In particularly, this is the result of continuing strong demand from the world's leading emerging economies with the global economy expanding by 2.7 per cent this year.

Moreover, the institutes believe that the global credit crunch triggered by the US subprime mortgage market crisis has so far had only a limited impact on Germany and in particular corporate financing in the nation.

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, the institutes predict that higher pay settlements combined with a continuing improvement on the German labour market will mean private consumption emerges as a key pillar of growth this year in the country.

Corporate Germany and the nation's industrial sector have also remained positive about the country's economic outlook with the key electronics industry predicting Wednesday its fifth growth year in a row.

However, while German economic growth is forecast to slip back a gear in the coming months, the nation can expect further improvements in its labour market with the numbers out of work falling below 3 million next year.

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 EU statistics office revised up the March inflation rate 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 following 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.

The institutes presenting the report Thursday include the Kieler Institut fuer Weltwirtschaft (IfW), the Rheinisch-Westfaelisches Institut fuer Wirtschaftsforschung (RWI), the Institut fuer Wirtschaftsforschung Halle (IWH) and the Institut fuer Wirtschaftsforschung (IFO). (dpa)