"Falling oil prices and the weakening Euro have helped to overcome the shock after the outbreak of the Ukraine crisis," Ifo president Hans-Werner Sinn said in Munich.
He and his team lifted their projection from 1.2 percent to 1.5 percent growth for 2014.
That puts them in a much more optimistic mood than the federal government and the Central Bank (Bundesbank), who are currently anticipating growth of one percent next year.
Confident shoppers are helping to keep the economy on track, Sinn said, with consumption expected to increase by 1.7 percent in 2015 compared with 1.1 percent this year.
Meanwhile, "businesses are looking into the future more calmly" than they have been in recent months.
Ifo is now predicting that the final growth figure for 2014 will come in at 1.5 percent thanks to upwards revisions from the Federal Statistics Office Destatis.