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Why Germany's having a merrier Christmas

Christmas in Germany will be that little bit merrier this year as positive business and consumer confidence points to a much-needed turnaround for the euro zone's largest economy -- one that veered dangerously close to recession just months ago.

German consumer sentiment hits its highest level in eight years heading into January, according to the forward-looking consumer sentiment survey released Friday.


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Market research group GfK said its consumer climate indicator, based on a survey of around 2,000 Germans, forecast a rise to 9.0 in January, from 8.7 in December.

"Evidently consumers currently assume that the phase of economic weakness in Germany will be temporary and are expecting their domestic economy to return to growth over the coming months," GfK said in a statement.

A return to confidence in the euro zone's largest economy is a point of celebration not just for Germany, but for the entire euro zone, mired as it is in a low-growth environment. Germany's economy had appeared remarkably robust since the economic crisis hit the region with a vengeance in 2009 but had shown some worrying signs of slowing down this year as its exports to Russia suffered following the West sanctions over Ukraine.

Read MoreWho opposes Russian sanctions? German companies

Most worrying for Germany, a country that has advocated strong austerity measures in the rest of the euro zone, was data showing that Germany itself could be close to crisis. The economy contracted 0.2 percent in the second quarter of 2014 but escaped the ignominy of a recession by expanding 0.1 percent in the third quarter. Technically, a recession is a contraction in GDP over two consecutive quarters.

Other positive data points came this week with the ZEW index showing that consumer confidence rose sharply in December and the Ifo index of German business confidence, released Thursday, that showed an increase for the second month in a row.

Germany, don't get complacent

Carsten Brezski, a senior economist at ING based in Brussels, said that Germany was having a conciliatory year-end after a rather disappointing year in which the "former growth miracle quickly lost its glamor."

"The Ifo reading (released Thursday) gives a conciliatory end to an exciting but also disappointing year of the German economy. The economy has once again defied premature swan songs," he wrote in a note following the Ifo data.

German's shouldn't be too quick to open the champagne, however, as Russia's economic crisis and complacency were probably the country's two biggest downside risks to a rosier German near-term outlook, Brezski warned.

Read MoreRussia's cash already fled. Here's where it went

"As regards Russia, German exports to Russia have already suffered under the sanctions and the Russian slowdown, currently standing 22 percent below last year's level," he said, "and there is clearly room for improvement" in terms of private consumption and investment in the economy.

"It's now time to take a deep breath and enjoy Christmas, even if there is no reason for excessive backslapping," he said.

Back to growth, for good?

The global decline in oil prices since mid-June is seen widely as a positive for Germany, whose economy largely relies on manufacturing and exports, and one analyst said that oil's fall was largely outweighing negative headwinds for Germany.

"The burdening factors weighing on business confidence for most of 2014 - notably the uncertainty created by ongoing geopolitical tensions in the Ukraine and the Middle East and the inability of the euro zone as a whole to embark on a meaningful economic recovery path - are increasingly being superseded by the supportive influence from large oil price and euro declines," Timo Klein, Senior German Economist, IHS Global Insight said Thursday.

German economic activity is estimated to have picked up already during the final months of 2014 and should accelerate further in early 2015, Klein said, predicting that "Overall, German annualized growth should return to a pace of 1.5-2.0 percent by the first quarter of 2015, and the 2015 average is currently expected at 1.6 percent."

- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt. Follow us on Twitter: @CNBCWorld