Kerber, who began a year ago at top of the rankings before finishing at No.22, won her seventh straight match of 2018 after winning four singles matches at the Hopman Cup last week. Defending champion Mertens suffered a second-set blip against Watson, victor in 2015, but recovered to earn a 6-4 1-6 6-2 success. "I think even though it may not be ideal at the moment, it's still good enough to win matches".
The German won her eighth consecutive match of the new season, coming from 3-1 down in the second set to beat qualifier Giorgi 6-2, 6-3 in the semi-final.
Former world number one Kerber fell out of the top 20 last year but has made a strong start to the year ahead of next week's Australian Open with victories over Lucie Safarova and Venus Williams this week.
It's just the beginning of the year.
"It's nice to make a final at home, but I think in my eyes it's ideal preparation for next week", Barty said. But I'm feeling good - I'm healthy.
Ashleigh Barty is set to hit the Australian Open in career-best form after advancing to the Sydney International final with a three-set defeat of countrywoman Daria Gavrilova.
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The Queenslander won 3-6, 6-4, 6-2 against a fiery Gavrilova, who struggled to find any consistency with her serve, and who earned a code violation for racquet abuse when frustrations boiled over.
"We have set up a ideal platform for me to work with this year to try and go deep in tournaments, whether it's in Australia or in Europe or in the States".
"For us, it's flawless".
Defending champion Gilles Muller was knocked out of the Sydney International men's event by unseeded Frenchman Benoit Paire 6-4, 6-4.
Italian fourth seed Fabio Fognini set up a semi-final against qualifier Daniil Medvedev following a 7-6 (7-4), 6-7 (7-4), 6-2 marathon against Frenchman Adrian Mannarino.
The 84th-ranked Medvedev came back from a set down to move within one win of what would be his maiden ATP title against rising Australian star Alex de Minaur.