Germany's economic confidence rose significantly this month to the strongest level since April 2010 on hopes of the situation improving over the coming months, data from the Center for European Economic Research/ZEW showed Tuesday.
The ZEW Indicator of Economic Sentiment rose 16.7 points to 48.2 in February. This was the third consecutive increase and the reading far exceeded the consensus forecast of 35.
Meanwhile, the assessment of the current economic situation dropped 1.9 points to 5.2 points. Economists say the ZEW index has hardly correlated with GDP growth, in the past.
In the opinion of financial market experts, the German economy faces less headwinds from the euro crisis than throughout the last months, ZEW President Wolfgang Franz said.
"If this situation remains unchanged during the next months, German business activity may pick up speed moderately," he added.
At the same time, economic expectations for the euro area climbed 11.2 to 42.4 in February and the indicator for the current situation remained almost unchanged at -75.6.
Bundesbank expects the German economy to return to growth in the first quarter and sees 0.4 percent expansion for the whole of 2013.
The largest Eurozone economy contracted 0.6 percent in the final quarter of 2012. As unresolved debt crisis took its toll even on Germany, the 17-nation currency bloc moved deeper into recession at the end of 2012.
Eurozone GDP shrunk 0.6 percent in the fourth quarter, the most since the first quarter of 2009. European Central Bank President Mario Draghi on Monday said he expects economic weakness in the early part of 2013 to be followed by a very gradual recovery later in the year.
Draghi warned against keeping interest rate at a low level for a protracted period, saying that this may create a number of challenges.
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, ING Bank NV's economist Carsten Brzeski said.
With Draghi's words yet to be followed up with actions and political risks in Italy growing, Jennifer McKeown at Capital Economics said she fears that investor sentiment might weaken again before long.
by RTT Staff Writer
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