BERLIN German business morale surprised with its first rise in seven months in November as exports outside the euro zone and the prospect of strong Christmas sales offered hope Europe's largest economy can regain some momentum.
The Munich-based Ifo think tank said on Friday its business climate index, based on a monthly survey of some 7,000 firms, rose to 101.4 from 100.0 in October, far surpassing even the highest estimate in a Reuters poll.
Germany proved largely immune to the first two years of the European debt crisis but recent data has suggested its resilience is wearing thin, with growth slowing to 0.2 percent in the third quarter.
Yet while economists expect the economy to contract in the fourth quarter, they had already expected the first quarter to be better and the Ifo numbers added to hopes that it could stave off the recession plaguing euro zone members further south.
"That was a positive surprise," said Ralph Solveen of Commerzbank. "The brightening climate raises hopes that the economy will stabilize after what will likely be a weak fourth quarter. (One) increase now is nevertheless not a sign of a turnaround."
He pointed to reduced fears of a euro-zone break-up as well as positive signals from Asia and the United States, where Germany's strength in high-added value exports like cars, electronics and machinery make it well-placed to take advantage of any economic improvement.
The euro rose to a three-week high against the dollar and European stocks trimmed losses after the Ifo numbers.
Firms were more upbeat about their business outlook, with an Ifo sub-index rising to 108.1 from a revised 107.2 in October. They were also less pessimistic about current business, with the current conditions index up to 95.2 from 93.2.
That came as a surprise after data this month showed the private sector shrinking, unemployment up, industrial orders and output down and exports falling at their fastest pace since late last year.
Ifo economist Klaus Wohlrabe said exporters' outlook had improved but firms were still delaying investment due to the uncertainty caused by the unresolved euro zone crisis.
"Export expectations rose strongly and are back in the positive area now. The orders situation and demand are stabilizing. Exports to the United States and Asia seem to be going well," he told Reuters. "The uncertainty (on investment) is still present. ... There has been no turnaround yet."
Seasonally-adjusted GDP data showed gross capital investment made no contribution to growth while investment in plant and equipment fell by 2.0 percent.
Chipmaker Infineon (IFXGn.DE) has already said it will cut planned investments.
"Businesses are investing less in machines and other equipment. The only explanation for that is a crisis of confidence - which means the German economy will lose more speed," said economist Holger Schmieding of Berenberg Bank.
Europe has been unable to contain the euro zone crisis with no agreement yet on how to get Greece's debt down to sustainable levels. France, Germany's single largest trading partner, lost a second AAA credit rating on Monday on concerns over its fiscal outlook and deteriorating economy.
(Additional reporting by Erik Kirschbaum, Alexandra Hudson, Stephen Brown and Christian Kraemer; Editing by Patrick Graham)