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German investor morale soars—too good to be true?

German economic sentiment rocketed beyond expectations in January, according to the latest data from the country's Centre for Economic Research (ZEW), but analysts wonder whether Germans are complacent about risks from the euro zone.

The ZEW indicator of economic sentiment index hit 48.4 points in January, up from 34.9 in December and reaching its highest reading since February 2014, ZEW said. Analysts had expected a rise to 40.0 points.

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The good news comes just days before the European Central Bank (ECB) holds in latest monetary policy meeting on Thursday. The bank is widely expected to unveil some kind of government bond-buying program in order to stimulate growth in the deflation-hit euro zone.

The ZEW data appeared to show that German experts were not especially worried about the region's recovery, however, with economic sentiment indicators for the euro zone also increasing significantly.

The ZEW institute said that decreasing oil prices and a depreciating euro, which gives major exporters like Germany a boost, had contributed to the gain in the indicator.

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Clemens Fuest, ZEW president, said in a statement that 2015 has started with "turmoil in the capital markets," but Germany had so far managed to shrug it off.

"News of the upcoming parliamentary elections in Greece and the Swiss National Bank's decision to abandon the euro cap on the franc's value have led to strong stock market fluctuations," ZEW President Professor Clemens Fuest said in a statement accompanying the data.

"However, this seems not to have impressed ZEW's financial market experts with regard to their expectations on the German economy. Instead, decreasing crude oil prices and a depreciating euro have contributed to a further gain of the indicator."

It indicates that Germany is brushing off market fears over euro zone deflation and this weekend's Greek election, despite anti-bailout party Syriza lead in the polls.

The party has said it would seek to renegotiate Greece's unpopular bailout with the troika of organizations overseeing its financial aid: the European Commission, European Central Bank and International Monetary Fund.

ZEW good, but not so good

However some analysts argued the ZEW figures were "too good to be true," with analysts at Pantheon Macro saying: "This survey is now telling an almost unbelievable recovery story for Germany and the euro zone."

"The upturn in the ZEW is unequivocal good news, but we are wary making too strong extrapolations to the real economy," the analysts added.

Meanwhile, Jennifer McKeown, senior European economist from Capital Economics, said that German optimism could be misplaced.

"Presumably any worries about the effect of the Greek crisis on the German economy were offset by expectations of ECB quantitative easing and hopes of a boost to exports from the weakening euro," she said in a note following the ZEW data.

The data suggest that the country's growth figures could pick up this year – but not by much, McKeown noted, a moot point for a country that appeared near to recession in the second half of 2014.

"For now, we expect German GDP (gross domestic product) to expand by a steady but unspectacular 1.0 percent this year and 1.5 percent next, which will do little to reduce the risk of a long bout of deflation in the euro-zone as a whole," she added.

The ZEW survey had not been a particularly reliable indicator of actual activity in the past, McKeowm stressed, adding that: "If the Greek situation deteriorates in the aftermath of this week'ends election or ECB QE disappoints, investors may well take a dimmer view of Germany's prospects."