Germany's economy grew at the fastest rate since reunification in the second quarter as companies stepped up investment and exports surged, providing fresh evidence that the recovery has shifted up a gear.

Gross domestic product (GDP) grew 2.2 percent on the quarter, beating all projections in a Reuters poll of 34 economists who gave a consensus forecast for 1.3 percent growth.

First-quarter growth was also revised up to 0.5 percent from 0.2 percent previously, Federal Statistics figures on Friday showed.

Economy Minister Rainer Bruederle said growth of well over two percent was now possible for the full year -- far above the government's official forecast of 1.4 percent.

We can't speak of a growth miracle but we are certainly in an XL-upswing, Bruederle said.

Several economists said they expected the economy -- Europe's largest -- could grow by at least 3 percent.

I can see 3 percent growth this year, even a bit more than 3 percent, said Andreas Scheuerle at DekaBank. The German economy is booming thanks to global demand.

The super-strong reading suggests quarterly growth for the 16-nation euro zone will prove to be stronger than the 0.7 percent forecast when figures are released at 5 a.m. EDT, even though Germany is far outpacing all its peers in the bloc.

The German economy last grew by more than 3 percent in a full year in 2006, when it expanded by 3.4 percent.

The euro gained ground after the data and European stock markets rose on opening <.FTEU3>.

Bruederle said the German GDP numbers showed the government should continue its 80-billion euros austerity drive to rein in a bloating budget deficit, although higher growth will boost the government's coffers dramatically.


Germany has its exports to thank for recovering from its deepest post-war recession, especially as the weaker euro -- down over 10 percent against the dollar since the start of the year -- makes its products cheaper outside the currency bloc.

Analysts remain cautious about the pace of growth going forward as budget cuts kick in across Europe, dampening demand for German products, while the U.S. economy also appears to be struggling.

Looking ahead, it is almost needless to say that the current growth momentum is hardly sustainable in the coming months, said Carsten Brzeski, economist at ING Financial Markets.

With the one-off impact from the construction sector and normalizing of export growth, German growth will return to more ordinary growth numbers, he said.

But even moderate growth in the third and fourth quarters could result in a GDP rise of above three percent for the whole year.

German companies are certainly benefiting from the upswing.

Steelmaker ThyssenKrupp raised its outlook for this year after its third-quarter earnings beat estimates on the back of robust demand from the automotive and engineering sectors.

Out of 30 DAX companies, 23 reported better-than-expected second-quarter results and 12 hiked their outlooks in the recent reporting season.

While led by exports, the upswing is beginning to broaden, with consumer data turning upwards as well.

Year-on-year, the economy grew by 4.1 percent in the second quarter, the GDP data showed. This followed a revised 2.1 percent expansion in the January-March period and beat expectations for 2.4 percent growth year on year.

(Additional reporting by Paul Carrel and Maria Sheahan in Frankfurt; editing by Mike Peacock)