BERLIN Morale among German firms and investors probably rose slightly in February while manufacturing expanded for the first time in a year, data is set to show next week, suggesting Europe's largest economy may eke out some growth in the first quarter.
Germany put in a strong performance through the first two years of the euro zone crisis but growth slowed last year and the economy even shrank by 0.6 percent in the fourth quarter, more than at any time since the depth of the 2009 financial crisis, as foreign trade weakened.
Most economists nonetheless say Europe's economic powerhouse is on the road to recovery at the beginning of 2013 and will avoid the second consecutive quarter of contraction that would technically put it in recession.
"February's ZEW and Ifo surveys of German investor and business confidence are likely to show that... activity has continued to improve slowly after the weak end to 2012," economists at Capital Economics said in a note.
The Ifo index is a key barometer of Germany's economic health and the ZEW index tracks investor and analyst sentiment in the country.
The Ifo, due out on Friday, is seen ticking up for a fourth straight month to 105.0 in February from 104.2 last month, according to the mid-range forecast in a Reuters poll of 41 economists, as both the expectations and current conditions components edge up.
However, Postbank economist Heinrich Bayer said sentiment surveys from Germany and the euro zone next week would likely take a breather in February after rising for the last couple of months.
"That's because the euro zone's crisis-stricken states have recently moved back into the spotlight, especially the Italian elections with a very uncertain outcome and the corruption affair in Spain," he said, referring to allegations centered on a former treasurer at Spain's ruling People's Party (PP).
Spanish Prime Minister Mariano Rajoy has made public his tax returns as he sought to quell the scandal which has gripped Spaniards and pushed up the country's borrowing costs.
"These developments (in Spain and Italy) are likely to have dampened optimism a bit even here in Germany," he added.
Economists at Landesbank Berlin also thought potential for improvement was limited given the weakening economic situation of other countries, particularly France and the Netherlands, while uncertainty over budget decisions yet to be made in the United States was also a risk.
The ZEW survey, due to be released on Tuesday, is seen rising for the third straight month to 35.0 in February from 31.5 last month, according to the consensus forecast in a Reuters poll of 36 economists.
"The index should be able to stay above this level in February too but we nonetheless expect a slight setback as the euphoric start to the year has recently given way to a somewhat more reflective mood on the capital markets," Bayer said.
In another positive sign, purchasing managers' surveys for February are expected to show Germany's manufacturing sector expanded slightly for the first time since last February and that the services sector also grew albeit slightly slower than in January.
That would add to a spate of data this month which has largely shown the German economy regaining a little momentum, with modest increases in exports, industrial orders and output while unemployment has fallen.
Other data due to be released next week includes a detailed breakdown of Germany's fourth-quarter gross domestic product (GDP) and producer prices, which are seen rising by 0.3 percent on the month in January.
Final consumer price data for January is expected to confirm that the cost of living in Germany rose by 1.7 percent on the year and fell by 0.5 percent on the month.
The Economy Ministry said earlier this week that the German economy would gradually regain traction this year as the global economic backdrop improves.
(Reporting by Michelle Martin; Editing by Toby Chopra)