By Andrea Thomas

BERLIN--Germany's economic upswing will remain in place next year and Berlin should use the positive momentum to embrace reforms that would boost the country's growth potential, the government's council of economic advisers said Wednesday.

In their annual report, the advisers known as the "wise men" predicted Germany's gross domestic product to accelerate by 1.9% this year and by 1.3% in 2017, though the slowdown in 2017 will mainly be due to fewer working days. Back in March, the government advisers predicted growth of 1.5% for this year and 1.6% for next.

"As the underlying growth momentum will remain essentially unchanged, the German economy willmove further into over-utilization," the report said.

The council's forecast is roughly in line with the 1.8% the government predicts for this year but is more cautious about next year, as the government and the International Monetary Fund expect 1.4% growth for 2017.

Germany's economy has recently proven to be stronger than previously thought. The German Ifo business sentiment index, usually a reliable gauge for future growth, rose to a 2.5-year high in October as companies were more satisfied with their current business situation and expressed far greater optimism about the months ahead.

With Germany's upturn expected to continue, it's now "time for reforms," the report said.

"The German government did not sufficiently use the positive economic growth of the past few years for market-oriented reforms," said Christoph M. Schmidt, chairman of the German Council of Economic Experts. "In the coming years, economic policy should focusmore strongly on competitiveness and sustainability of the German economy."

As one of the key reform areas, the council said the government should conduct tax reforms to increase efficiency and link the statutory retirement age--currently set at 67--to longer life expectancy in the statutory pension insurance system.

The council was critical, however, of the European Central Bank's loose monetary policy that it believes masks persisting structural problems in the eurozone and increasingly threatens financial stability.

"The extent of monetary easing in the euro area is no longer appropriate given the region's economic recovery," the report said. "Consequently, the ECB should slow down its bond purchases and end them earlier."

Last month, the ECB hinted at extending its central bank's 80 billion euro ($88 billion)-a-month bond-purchase program, which is due to end in five months.

It also left its interest rate is unchanged at a record low of 0%, while its deposit rate is at minus 0.4%, meaning that banks pay to leave excess cash at the central bank overnight.

Write to Andrea Thomas at andrea.thomas@wsj.com

(END) Dow Jones Newswires

November 02, 2016 06:14 ET (10:14 GMT)

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