The Bundesbank's prediction compared with its previous forecast of 0.6 per cent growth in gross domestic product this year, made last December during a rare weak patch for Germany, Europe's biggest economy.
It said the economy could grow by 1.6 per cent in 2013, slightly below its previous prediction of 1.8 per cent.
Germany's economy returned to healthy quarter-on-quarter growth of 0.5 per cent in the January-March period after contracting slightly in the final quarter of 2011. The country's unemployment rate stood at a low level of 6.7 per cent in May.
The government's borrowing costs have sunk to rock-bottom levels as investors view Germany as a safe haven amid the eurozone debt crisis. The European Central Bank's benchmark interest rate, meanwhile, is at a record-low 1 per cent.
"Provided that the sovereign debt crisis in the euro area does not escalate, I assume that expansionary forces will keep the upper hand," Bundesbank chairman Jens Weidmann said of the outlook for Germany.
"All in all, the economic picture in Germany is much more favourable than in most other European economies," he said. While Germany has powered ahead, many other eurozone countries are seeing their economies shrink and unemployment rise — in Spain and Greece, to more than 20 per cent.
The Bundesbank conceded that its new projection is "subject to exceptionally high uncertainty and risk."
It said that, if the expected weaker activity in the eurozone were compounded by noticeably slower growth elsewhere, that could have a "severe impact" on Germany. And the upcoming Greek election and Spain's banking troubles add uncertainty, it said. German business confidence dropped last month amid anxiety over the crisis.
On Friday, official data showed that exports from Germany dropped 1.7 per cent in April compared with the previous month — a fall that was sharper than expected and followed three consecutive months of gains.
The Federal Statistical Office said Germany exported goods and services worth €87.1 billion ($109.5 billion) in April.
In year-on-year terms, that was a 3.4 per cent rise — led by a 10.3 per cent increase in exports to countries outside the European Union but dampened by a 3.6 per cent drop in exports to other eurozone countries.
Germany's trade surplus slipped to €14.4 billion in April from €17.4 billion in March.
The country's imports were down 4.8 per cent in April compared with the previous month, also ending three months of increases. Imports totalled €72.7 billion — a 1 per cent year-on-year decrease.