BERLIN German business morale improved for a third consecutive month in January to its highest in more than half a year, more evidence that Europe's largest economy is gathering speed again after contracting late last year.
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 104.2 in January from 102.4 in December.
That beat the median forecast in a Reuters poll of 40 economists for the index to climb to 103.0 and matched the highest estimate in the poll. The data sent the euro to a fresh 11-month high against the dollar and Bund futures falling.
"The crisis is over. At least in Germany," said Carsten Brzeski, economist at ING in Brussels. "The contraction in the fourth quarter of 2012 seems to have been short-lived."
Germany's economy held up strongly during the first 2-1/2 years of the euro zone debt crisis but sputtered in the second half of 2012 as firms postponed investment and exports suffered due to a gloomy economic outlook in Europe and elsewhere.
The economy shrank by 0.5 percent in the fourth quarter of the year, the Federal Statistics Office estimated earlier this month. But as concerns fade that the single currency could break apart, and as the economic outlook elsewhere brightens, economists are betting on a return to growth early this year.
"The news situation is good. The financial markets have calmed. German firms are feeling that," Ifo economist Klaus Wohlrabe told Reuters.
Some German firms have already set their eye on other markets to offset weakness in the euro zone. Sales at Beiersdorf (BEIG.DE) rose by 4.7 percent in 2012 as the maker of Nivea cream turned to Russia and Brazil to offset the weak climate in its home market.
MORE UPBEAT ABOUT FUTURE
Firms' expectations improved for the fourth month running as companies become more hopeful about business this year. Their views on current conditions also climbed, after falling last month, increasing to a better-than-expected 108.0 from 107.1.
Germany's rebound is not expected to come with a roar, however and Wohlrabe said Ifo expected first-quarter growth of 0.2 percent. The government and Bundesbank expect 2013 growth of 0.4 percent, at the lower end of economists' forecasts.
Germany's central bank said this week that the slump should be short-lived and that Germany's economy may already have bottomed out, in contrast to the currency bloc as a whole, which is in its second recession in four years.
German private sector activity in January jumped to its highest level in a year on brisk business in services and Chris Williamson, economist at Markit, which compiled the data, said that indicated the German economy had already seen the worst.
Ordinary Germans have not felt much of the downturn as unemployment remains low and wages are on the rise. As long as that remains the case, the economy is likely to play only a secondary role in the parliamentary election in September.
Polls suggest popular center-right Chancellor Angela Merkel will win a third term, but given a slide in support for her Free Democrat (FDP) allies, she may be forced to switch coalition partners to hold power.
"It looks as if strong growth of the past years and the expected recovery are rather taken as a given than an achievement of Merkel's coalition," Brzeski said.
(Additional reporting by Alexandra Hudson, Stephen Brown, Michelle Martin, Christian Kraemer and Noah Barkin; Writing by Annika Breidthardt; Editing by Noah Barkin and Catherine Evans)