The German government is banking on the refugees arriving in its cities by the thousands each day to help turbocharge its economy and offset the effects of weaker demand from China.

Increased state spending on refugees and private consumption will drive growth in Europe's largest economy this year and next, German Vice Chancellor and Economy Minister Sigmar Gabriel said.

Record numbers of people, fleeing war in the Middle East or seeking prosperity, have been arriving in Germany in recent weeks The federal government and states are spending €10 billion (NZ$16.7 billion) on accommodating the new arrivals, integrating them and finding them jobs.

"When it comes to refugees, the billions of euros we are planning to invest in education, kindergartens and schools will of course have an effect like a small stimulus package," Gabriel said on Wednesday. The country's aid in the refugee crisis was an investment in Germany's future given its ageing population, he explained.

Having said that, consumer spending will continue to be the main prop for the economy, which was on a solid growth track despite the subdued global outlook, he said. Record-high employment, rising wages and nearly stable prices are boosting household spending, while cheaper petrol is freeing up some cash for consumers for other purchases.

German chancellor Angela Merkel's government has slightly lowered its 2015 growth forecast to 1.7 per cent, from the 1.8 per cent it predicted in April, but confirmed its estimate for a 1.8-per cent expansion in 2016.

READ MORE:

* German refugee policy row raises political heat

* Donald Trump says Angela Merkel's commitment to Syrian refugees is 'insane

* Germany now reportedly expecting up to 1.5 million asylum seekers in 2015

The economy ministry expects domestic demand to rise by 1.7 per cent this year and 2.1 per cent next year.

It revised up its estimates for government spending to an increase of 2.3 per cent this year and a gain of 2 per cent next year, mainly due to higher spending for refugees.

The influx of refugees is also expected to affect the labour market, with the ministry saying employment would rise to a record-breaking 43.3 million next year, though the new arrivals will likely push up unemployment by 60,000 in 2016.

German authorities are struggling to cope with the roughly 10,000 asylum seekers arriving every day. The German government still officially expects 800,000 asylum applications in 2015, while media say up to 1.5 million people could come.