The Bundesbank upgraded its forecast for growth of the German economy this year, even as new data showed Europe’s top economy is increasingly feeling the pain from the eurozone debt crisis.

In its latest monthly report, the German central bank raised its forecast for gross domestic product (GDP) growth this year to one per cent from 0.6 per cent previously.

But it pared back its 2013 forecast to 1.6 per cent from 1.8 per cent.

“Following a temporary phase of weakness, the German economy has regained momentum,” the Bundesbank wrote in its latest monthly report.

“The adjustment recession in some eurozone countries and the loss in confidence resulting from the sovereign debt crisis have left their mark. But the German economy’s structural soundness and the robustness of the global economy have retained the upper hand,” it said.

The German economy contracted by 0.2 per cent in the final quarter of 2011, but managed to skirt a recession by clocking up growth of 0.5 per cent in the first three months of this year.

Activity is being driven by robust exports and con-sumer demand, even if the pace of growth looks set to slow, analysts say.

The Bundesbank acknowledged the current “difficult environment” and noted that demand for German-made goods from a number of eurozone member states was suffering.

“At the same time, the global economy has regained its footing and that means demand for German exports from countries outside Europe is on the rise,”it argued.

In addition, the domestic labour market was in good shape and the current low level of interest rates was also favourable.

“Our assumption is that expansive forces will retain the upper hand as long as the euro area debt crisis does not escalate,” said Bundesbank president Jens Weidmann.

“All in all, the economic picture in Germany is a great deal more favourable than in most other European countries,” he said.