Europe Economy

German business sentiment rises in December

German business sentiment rose in December, according to data released by the Ifo Institute on Wednesday, adding to a raft of recent positive economic data from the euro zone's largest economy.

The business climate index rose to 109.5 in December, in line with a Reuters forecast. The reading in November was 109.3.

Other data collected by the Munich-based research institution showed that German business expectations also rose, to 107.4 in December from a revised figure of 106.4 the previous month.

Image source: SpreePIX Media | Visit Berlin

Hans-Werner Sinn, President of the Ifo Institute, said the German economy "is in a festive mood."

German GDP grew 0.6 percent in the third quarter, from the same period a year ago, and purchasing managers' index (PMI) data released on Monday showed business activity in the country was expanding. Its unemployment rate is also one of the 28-nation European Union's lowest.

Jonathan Loynes, chief European economist at Capital Economics said the Ifo survey was "consistent with other evidence pointing to steady but unspectacular growth in the German economy."

By contrast, the current conditions index slipped and has been broadly flat for the last five months. Accordingly, the rise in the survey still seems to be built largely on hope, rather than reality…. Overall, then, the Ifo survey provided another indication that the German economy is doing better than its neighbours, especially France."

Current assessments of the German economic situation were lower this month with the assessment of the current business situation hitting the 111.6 mark on the index, down from 112.2 in November. "But there are few signs that the economy is building up the momentum needed to ensure a strong recovery in the euro-zone as a whole," Loynes warned.

"Favorable assessments of the current business situation were scaled back somewhat, but manufacturers' optimism rose to its highest level since spring 2011. Although export expectations fell slightly, they nevertheless signal that firms reckon with positive impulses from abroad," Ifo's Sinn added.

- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt

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