BERLIN (Reuters) - Germany's Ifo institute revised up its growth expectations for Europe's largest economy in 2016 and 2017 on Thursday, citing a strong labor market and higher state spending on refugees.

The Munich-based institute said it expected German gross domestic product (GDP) to increase by 1.8 percent this year, up from a previous forecast of 1.6 percent that it had made in April along with other leading economic institutes.

"The first quarter went better than expected," Ifo economist Timo Wollmershaeuser said. "The German economy's moderate economic upturn that started in 2014 is continuing into the second half."

For 2017, Ifo is now forecasting growth of 1.6 percent, up from the previous estimate of 1.5 percent.

Ifo is more optimistic about Germany's growth prospects than the Bundesbank, which has forecast a 1.7 percent expansion in 2016 and growth of 1.4 percent in 2017.

(Reporting by Michael Nienaber; Editing by Michelle Martin)