Other data collected by the institution showed that German forward-looking business expectations fell to 106.4 in March, below the 108.3 recorded in February and again failing to meet expectations from analysts polled by Reuters.
(Read more: France on the mend as German firms take a breather)
These two disappointing headline figures were due to the fallout from events in Crimea, according to Carsten Brzeski, a senior economist at ING based in Brussels, with German industry reliant on energy pipelines from Russia.
Nonetheless, Brzeski pointed to the current assessment component of the index - which rose to 115.2 versus 114.4 last month - as evidence of a continued impressive upward trend, reaching the highest level since April 2012.
"German businesses are impressed but not shocked by the possible economic impact from the Crimean crisis," he said in a research note after the release. "The German economy is gaining momentum."
"The exceptionally mild weather has given an enormous boost to construction activity...in addition, the well-known growth drivers like the strong labor market, low inventories and filled order books are also doing their work."
(Read more: Merkel: US shale gas imports an option for Europe)
In general, he believed that Tuesday's index sends two messages: "The German economy has again entered the fast lane in the first quarter but continuing the ride at maximum speed will not be an easy task," he said.
On Monday, investors had already had a chance to gauge the health of the German private sector. The release of Markit's Purchasing Managers Index (PMI) showed a slowdown in output to a four-month low. Neighboring France surprised to the upside.
German business activity fell from the 33-month high reached in February to a reading of 55.0 in March. This still marked an expansion in the sector. Companies in the goods producing sector reported the slowest rise in output since November and the private sector reported a moderation in growth of incoming new business. The rate of expansion nonetheless remained solid, according to analysts, and finished off the best quarter of growth since the second quarter of 2011.
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