Germany's six leading research institutes revised upwards 2006 estimates for economic growth in the country, saying GDP growth is expected to improve 1.8 pct compared to the 1.2 pct it had previously forecast. The institutes said GDP growth next year is forecast to slow down to 1.2 pct as expansion in the world economy reduces its speed, with domestic demand curbed by restrictive fiscal policies. The increase in value-added tax to 19 pct from 16 pct effective from January 2007 as well as other taxes will overall contribute to a 0.50 percentage point negative impact on the country's GDP, the six institutes said. Inflation this year is forecast to be up 1.6 pct compared to its previous 2.0 pct forecast, while next year, the estimate is at 2.5 pct. The institutes expect a further "moderate" increase in the key interest rates of the European Central Bank (ECB) this year so that by end-2006, they would be at 3.00 pct. The ECB's main refinancing rate currently stands at 2.50 pct. The institutes said the next ECB rate hike could already take place this summer, but expected the bank would leave rates unchanged next year, estimating the bank would move rates to around 3.5 pct and 4 pct after 2007. "It is difficult to estimate whether or not the tightening of the monetary policy will continue next year. The estimates made by the institutes indicate that the interest rate levels which will have a neutral impact on the economy would likely be at between 3.5 pct and 4 pct," the institutes said.