The German government has revised its economic forecast upward, and Europe's largest economy is now expected to avoid a recession this year as inflation declines, Reuters reported.

Gross domestic product is projected to grow 0.2 percent this year, up from a fall forecast of a 0.4 percent decline.

Inflation is projected at 6 percent in 2023, down from a previous forecast of 7 percent, as energy prices decline after the initial shock from the energy crisis caused by the war in Ukraine

There is no sign of a significant recession, which many observers have long considered inevitable, Economy Minister Robert Habeck said in the report.

While the energy crisis and central bank interest rate hikes have made the German government cautious this year, Habeck assured that the crisis is now manageable. Germany has proven to be resilient and has succeeded economically, he said. The initially very pessimistic scenario with fears of a historic downturn in the event of a gas shortage has been averted, he said.

Energy supplies remain reliable and stable, Habeck said, adding that the challenge now is to become even more energy independent. The report said Germany's unemployment rate in 2023 will be 5.4 percent, up slightly from 5.3 percent in 2022.

The ifo Business Climate Index rebounded thanks to much less pessimistic expectations.

Despite the improved outlook, export growth is expected to slow to 2.2% this year after an increase of 3.2% last year, the report said. Among the biggest challenges for the economy are the war in Ukraine and its economic consequences, the weaker global economic situation, sustained high energy and consumer prices, and the security of gas supplies.