By Nina Adam and Andrea Thomas

BERLIN-Germany's economy grew strongly in 2016, propelled by a buoyant labor market and a pickup in government spending, likely making it one of the fastest-growing economies out of the Group of Seven industrialized nations.

Germany's gross domestic product expanded by 1.9% in 2016 from 2015 in inflation-adjusted terms, the Destatis statistics body said Thursday. This is the highest rate since 2011, beating the government's own prediction of 1.8% growth.

Economic activity is forecast to remain robust in 2017, which could bolster Chancellor Angela Merkel's popularity ahead of the national election in Fall.

The economic upswing was led by robust domestic consumption and by government expenditure aimed at housing and training the over one million migrants who have entered the economy since 2015.

Government spending rose 4.2% in 2016 from 2015, according to Destatis. Household consumption and construction investment were also robust.

But economists warned that rising inflation, if left unchecked, would soon start eroding households' incomes and savings, as the European Central Bank is not expected to raise interest rates any time soon. The ECB sets rates across the Eurozone, of which Germany is a member.

Germany's annual inflation rate, measured by European Union harmonized standards, could rise to 1.4% this year from 0.3% in 2016, according to projections by the Bundesbank.

Robust economic growth has helped fill government coffers. Germany's national budget surplus came in at 0.6% of GDP in 2016 compared with 0.7% in 2015, according to Destatis. Finance Minister Wolfgang Schaeuble expects the national budgetto remain balanced through to 2020.

Write to Nina Adam at nina.adam@wsj.com and Andrea Thomas at andrea.thomas@wsj.com

(END) Dow Jones Newswires

January 12, 2017 04:42 ET (09:42 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.