* OECD urges Germany to broaden growth potential
* Says must also cut budget deficit to safeguard recovery
* Should also reform jobs market, ensure stable bank sector
BERLIN, March 26 (Reuters) - Germany needs to do more to boost the growth potential of its domestic economy to reduce a reliance on exports for economic expansion, the Organisation for Economic Cooperation and Development said on Friday. The OECD's call for Germany to achieve "more balanced growth" comes after France's economy minister last week pressed Berlin to boost domestic demand.
French Economy Minister Christine Lagarde triggered outrage in Berlin with an article in the Financial Times saying Germany's huge trade surplus threatened the competitiveness of other euro zone countries.
The OECD said Germany should broaden its growth pattern beyond exports to increase the economy's potential.
"Even though the economy is recovering, the pre-crisis level of production is projected to be reached only by 2013," the OECD said in its 'Economic Survey of Germany, 2010'. "There will thus be substantial slack in the economy over the medium term.
"Going forward, the main driving force is likely to remain exports, as investment spending in new capacity is projected to pick up only slowly," the Paris-based group added.
To broaden the economy's growth potential, the think tank said Germany should implement reforms to promote innovation and structural change. The OECD called for:
* Product market regulation to be eased to strengthen competition;
* An improved innovation framework to ensure high research and development spending levels;
* Education reforms to continue to supply a larger pool of highly qualified and flexible workers;
* Migration policy to be tailored to promote the immigration of high-skilled workers to prevent skills shortages emerging.
Germany was the world's biggest exporter of goods from 2003 to 2008, after which it was overtaken by China.
The German economy emerged from its deepest postwar recession in the second quarter of last year and foreign trade is playing a strong role in its recovery.
To safeguard a sustainable recovery, the OECD also said Germany should adjust its labour market policy to ease job protection rules.
Germany also needed to reduce budget deficits considerably from 2011 to comply with new fiscal rules that restrict borrowing. It said priority should be given to spending cuts ahead of tax increases.
The OECD also called for German authorities to continue playing an active role in ensuring the banking sector remains stable. It advocated stress tests and said a reform of the regional Landesbanks was a priority.
(editing by John Stonestreet)