German investor morale unexpectedly improved in March, chiming with other recent reports showing Europe's largest economy has made a solid start to the year despite weaker global growth and a strong euro.
The Mannheim-based ZEW research institute said on Tuesday its economic sentiment indicator, based on a survey of 285 analysts and institutional investors, rose to -32.0 this month from -39.5 in February.
The reading came in stronger than the consensus forecast of -40.0 in a Reuters poll of 40 economists, and helped push up the euro to a record high against the dollar at $1.5489.
"It seems that the recent run of broadly positive news on the German economy, including January's strong industrial production figures, has reduced investors' pessimism," said Jennifer McKeown at Capital Economics.
Industrial output rose 1.8 percent on the month in January.
"March's surprise rise in the German ZEW index provides some encouragement that investors do not expect a deteriorating outlook for the U.S. and problems in financial markets to spell disaster for the German economy," McKeown added.
A separate ZEW gauge of current conditions for Germany dipped slightly to 32.1 from 33.7 in February, but was above a consensus forecast of 30.4.
Other economic indicators have shown the German economy made a solid start to this year, with the Munich-based Ifo business climate index rising in both January and February. In January, Germany sold a record amount of goods abroad
Leading companies have also been enjoying growth.
Volkswagen's Audi AG premium unit reported on Tuesday record profitability for 2007 and forecast further growth for this year in earnings, vehicle sales and revenue. Audi's pretax profit jumped 50 percent last year.
The ZEW said financial experts surveyed had grown more optimistic about the U.S. economy's growth prospects.
"Moreover, they expect the U.S. dollar to appreciate versus the euro," the institute added in a statement. "This should benefit the export-oriented sectors of the German economy."
Economy Minister Michael Glos said separately that the strong euro was clearly hurting some sectors of the economy but there was no reason to be concerned in the short term.
Last year, the German economy grew 2.5 percent, though growth more than halved to 0.3 percent in the final quarter due to a drop in household spending.
Glos said there was some concern about the strength of domestic demand and that consumer morale was not as good as had been expected. In January, a broad measure of retail sales fell.
"We have worries, especially regarding the domestic economy," Glos said at an Economy Ministry conference in Berlin, adding later that he saw no need to revise the government's forecast for growth of 1.7 percent in 2008.
Bear Stearns economist David Brown said the German business sector faced a batch of problems including the strong euro, high oil prices and the impact of the credit crunch.
"Germany should avoid recession this year if the ECB works fast on rates, but the risk is that they will keep resisting for so long that they will eventually do untold damage to economic confidence," Brown said.
Separately, the DIW economic research institute forecast the economy would grow by 0.5 percent in the first quarter of 2008.
"With this, the German economy appears to be in a stronger condition at the beginning of the year than previously expected," the DIW said.