German business confidence posted in July the strongest rise for 20 years, a benchmark survey showed yesterday as the export giant left other European economies behind to motor out of recession.
The Ifo institute's index of business sentiment in export-heavy Germany, where the economy shrank by nearly five per cent in 2009, soared to 106.2 points from 101.8 points in June, well ahead of market forecasts.
"The rise is the biggest since German reunification. Firms are reporting significantly more favourable business conditions than last month," the Munich-based Ifo said.
"The German economy is in party mood again."
The result was much better than expected, with economists polled by Dow Jones Newswires having forecast on average the index to have fallen slightly to 101.5 points.
The monthly survey of around 2,500 companies across all sectors of the German economy also found managers more optimistic about the coming six months than they were in June, the Ifo said.
A sub-index on expectations rose to 105.5 points from 102.5 points, while another measuring companies' assessments of current conditions shot up to 106.8 points from 101.2 points.
Jennifer McKeown at Capital Economics said that the Ifo reading suggested that the German economy was continuing to perform well, "not only compared with others in the eurozone but also with the rest of the world."
Timo Klein at Global Insight agreed, saying that a breakdown of the survey showed "large improvements" in business sentiment all across the board, with all sectors except construction revealed improving expectations.
"This rapid rebound following the eurozone debt and euro crisis is remarkable," Mr Klein said.
"The conclusion is that German economic growth not only demonstrated huge momentum during the second quarter but will remain robust during the second half of 2010."
He said that IHS's forecast for 2010 German economic growth would have to be increased from two per cent at present. Capital Economics meanwhile raised its prediction to 2.0 percent from 1.5 per cent.
Ms McKeown warned however that the recovery would slow in 2011 and that prospects for the eurozone and other European economies as a whole still looked "considerably worse".
She added that another note of caution was that Germany's recovery was still driven by exports, with the country's consumers still staying away from the shops, adding to Berlin's much-criticised current account surplus.
"Unless a German domestic demand revival starts soon, which seems unlikely given the coming fiscal squeeze, the positive effect on the rest of the eurozone will be limited," Mr McKeown said.