German analyst and investor sentiment peaked at its highest level since April 2010 in February, beating analyst expectations with at third consecutive increase and offering investors hope that Europe's largest economy could be recovering.
The German economy contracted by 0.6 percent in the fourth quarter of 2012 from the third, marking its worst performance since the global financial crisis was raging in 2009.
"The financial market experts have made their peace with the weak fourth quarter of 2012. In their opinion the German economy faces less headwinds from the euro crisis than throughout the last months. If this situation remains unchanged during the next months, German business activity may pick up speed moderately", ZEW President Professor Wolfgang Franz remarked after the results.
The pan-European FTSEurofirst 300 Index was higher on the news and the euro jumped to 1.3443 against the dollar from 1.3368, but soon dropped back slightly.
In the monthly poll of 272 analysts conducted by the Mannheim-based think tank between February 4 and 18, the figure rose to 48.2 points in February, up from 31.5 points the month before. A Reuters forecast pointed towards an expected number of 35.0 points.
Carsten Brzeski, senior economist at ING said the prospects for the German economy looked promising despite the lack of hard data for 2013 so far.
"Even if the real economy only lives up to half the expectations recently created by soft indicators, any fears of a technical recession should turn out to have been unjustified," he said in a note to clients.