BERLIN, Dec 14 (Reuters) - Rising domestic investment and private consumption will help drive the German economy in 2011, the Ifo research institute said on Tuesday, raising its forecasts for economic growth this year and next.
"The German economy has continued with great gusto the recovery it began more than a year ago," Ifo said in a statement, noting that the domestic economy was gaining in significance, after the initial boost came from exports.
"In the coming year, the traffic light for the German economy remains green ... decisive for this will probably be the development of domestic demand."
Ifo raised its forecasts for German economic growth to 3.7 percent in 2010 and 2.4 percent in 2011 from its June forecasts of 2.1 and 1.5 percent respectively.
Ifo said more than three quarters of the economic growth would come from the domestic economy in 2011 with private consumption to rise 1.4 percent and investment in machinery and equipment to grow 8.7 percent.
"Investments will probably continue to rise noticeably in the coming year, considerably encouraged by the historically low interest rates," Ifo said.
Other data on Tuesday showed that German analyst and investor sentiment rose more than expected in December on a bright outlook for exports and domestic demand.
Germany suffered its biggest post-war recession in 2009 when its economy contracted 4.7 percent as global demand plummeted. Yet it emerged faster than expected from the slump and left most other euro zone countries trailing in its wake.
Forward-looking indicators suggest Europe's largest economy is now poised to strengthen its performance, with domestic demand playing an ever-more important role -- as Germany's European Union colleagues, notably France, had urged.
In October, the government raised its 2010 growth forecast to 3.4 percent from a previous estimate of 1.4 percent. Berlin is due to issue its next official growth projections in mid-January. (Reporting by Sarah Marsh; Editing by Ruth Pitchford)