U.S. Markets open in 25 mins

Germany's consumption-led upswing to continue, finance ministry says

People visit Germany's oldest Christkindlesmarkt (Christ Child Market) in Nuremberg November 28, 2014. REUTERS/Michaela Rehle

By Michael Nienaber

BERLIN, Feb 23 (Reuters) - The German economy is doing well and its consumption-led upswing is likely to continue this year helped by record-high employment, rising real wages and ultra-low borrowing costs, the German finance ministry said on Thursday.

"The German economy is on a solid growth path," the ministry said in its monthly report, adding that indicators signalled a continuation of the economic upswing in 2017.

The upbeat comments should be positive news for the euro zone as a whole. As the largest economy, there is a strong correlation between what happens in Germany and in the rest of the bloc.

The ministry's report follows hard on the heels of the closely watched Ifo index, which showed on Wednesday that German business morale rose in February, boosting hopes for a robust start to 2017 despite worries about U.S. trade policies and the French election.

That itself followed robust purchasing manager indexes for February showing Germany, France and the euro zone as a whole.

Germany grew by 1.9 percent last year, the strongest rate in half a decade, driven by private consumption, state spending and construction.

"Consumption will probably remain an important driver of economic growth," the ministry said, pointing to a number of factors such as rising employment, pay hikes, low interest rates and moderate, albeit rising energy prices.

The economic upturn is pushing up tax income. In January, revenues of the federal government and the 16 regional states rose 4.0 percent on the year, the ministry said. That is above the projected rise of 2.9 percent for the whole year.

The buoyant tax revenue has enabled Chancellor Angela Merkel's government to raise state spending on roads, faster internet and refugees without taking on new debt.

This means Finance Minister Wolfgang Schaeuble can stick to his cherished but internationally criticised goal of a balanced budget before federal elections in September.

(Editing by Jeremy Gaunt)