Bundesbank upgraded its growth forecasts for 2015 and 2016 for Germany. The growth is expected to be 1.7% in 2015, up from the previous estimate of 1.0%, and 1.8% in 2016, up from the previous estimate of 1.6%.

German economy is expected to grow at 1.5% in 2017.

"The German economy has recovered from the lull in mid-2014 more quickly than expected and has returned to a path of growth that is supported by both internal and external demand," the Bundesbank said.

Bundesbank President Jens Weidmann said that a sharp increase in the exchange rate will be downside risks to the economy.