Nov. 13 (Bloomberg) -- Germany’s economy will grow by 1.6 percent in 2010 in a “fragile” export-led recovery, faster than Chancellor Angela Merkel’s government is forecasting, her council of economic advisers said.

Stimulus spending to overcome the impact of Germany’s worst recession since World War II will help lift the budget deficit to 5.1 percent of gross domestic product next year, nearly twice the euro area’s 3 percent ceiling, the panel said in a report released in Berlin today.

Unless Merkel reduces the deficit and promotes investment during her second four-year term, which began last month, Germany will “suffer from weak growth for a long time,” the five-member panel said in its annual report.

“The enormous new borrowing for public budgets must be reduced starting in 2011,” the report said. “Unless spending is markedly cut, tax increases will not be avoidable.”

The advisers suggested Merkel reconsider tax-relief pledges made by her governing coalition after Sept. 27 elections, saying the 24 billion-euro ($35.7 billion) tax cut “is not compatible with serious fiscal policy.” The recovery is “too weak and too fragile” for “euphoric” spending plans, the report said.

Germany’s economy will grow about 1.2 percent next year after shrinking 5 percent in 2009, the government said in its twice-yearly outlook on Oct. 16. Recovery accelerated in the third quarter as German GDP increased a seasonally adjusted 0.7 percent from the second quarter, when it rose 0.4 percent, the Federal Statistics Office said today.

Exports will increase 6.5 percent in 2010 after an estimated 17 percent decline this year, the economic advisers said. Consumer spending will shrink by 0.1 percent next year after an estimated 0.8 percent rise in 2009, spurred by government stimulus programs, the report said.

Germany’s jobless rate will rise to an average 9.4 percent next year from 8.2 percent in 2009, the advisers forecast.

To contact the reporter on this story: Tony Czuczka in Berlin at aczuczka@bloomberg.net.

Last Updated: November 13, 2009 05:40 EST