Business confidence in Germany rose sharply to a near two-year high in April, the closely watched Ifo index showed yesterday, in another sign of recovery in Europe's top economy.

The index rose to 101.6 points in April from 98.2 in March, smashing forecasts by analysts surveyed by Dow Jones Newswires, who were looking for a rise to 98.9 points.

The index has not been so high since May 2008.

"The German economy has shifted into a higher gear," said Hans-Werner Sinn, president of the institute. The survey of around 7,000 businesses is considered a reliable indicator of future economic performance.

"If the real economy now follows up on confidence indicators' promises, the near future looks very bright," said Carsten Brzeski, an economist from ING.

While a viciously cold winter is expected to have frozen growth in the first quarter of 2010, the economy as a whole is projected to grow by 1.4 per cent this year, according to recently published government forecasts.