The ifo Institute has raised its forecast for German economic growth in the current year from 0.2% to 0.4%, an indication of a tepid recovery for Europe's largest economy.
The Munich-based institute, one of the country's most influential economic think tanks, released the updated forecast on Thursday.
"The German economy is slowly working its way out of the crisis," ifo's economic director, Timo Wollmershäuser, said in Berlin on Thursday.
He said it was not a summer fairytale but "new hope is emerging."
Next year, the ifo expects economic growth of 1.5%.
The institute said that the purchasing power of private households is increasing, while global trade and industrial production should continue to recover in the second half of the year.
The easing of monetary policy will also support investment, said Wollmershäuser. He said the institute expects the European Central Bank to cut interest rates twice more this year.
The institute also now forecasts inflation to ease further to 2.2% this year and 1.7% next year.
However, the number of unemployed people in Germany is forecast to rise from 2.6 million to 2.7 million over the course of this year, hitting an unemployment rate of 5.9%.
But next year, the number of unemployed is expected to fall again to 2.6 million.
The number of people in employment is expected to rise slightly from 45.9 million to 46.1 million this year and to 46.2 million next year.
According to the ifo Institute, the German government's budget deficit will fall significantly from €99 billion ($106 billion) to €73 billion this year and to €54 billion next year.
Germany's large current account surplus, which has drawn international criticism, is likely to rise further from €258 billion to €312 billion this year and then to €306 billion next year.
Ifo is one of several economic research institutes that prepare twice-annual joint forecasts for the German government in the autumn and the spring.
The other institutes presented their own individual forecasts last week, which also forecast economic growth of between 0.2% and 0.4% this year, inflation of between 2.2% and 2.4%, and total unemployment of 2.7 million to 2.8 million.
The European Commission has forecast the overall economy across the entire European Union to grow by 1.0% this year.
