Europe's fragile recovery showed signs of picking up speed yesterday when business confidence in Germany, the euro zone's biggest economy, improved for the sixth month running in October.
The Munich-based Ifo economic institute said its German business-climate index jumped to its highest level since February 2001, driven partly by a brighter assessment of current economic conditions.
The index, based on a survey of more than 7,000 companies, rose from 91.9 in September to 94.2 in October.
Economists said the rise took the Ifo index to a level normally consistent with year-on-year output growth of about 2 per cent. This would allay fears the fragile pick up in Germany could peter out prematurely.
But they warned that the gap in the Ifo survey between companies' hopes and assessment of actual conditions remained a cause for caution and did not suggest Germany was on the brink of a strong recovery.
"It isn't a sign that a major boom or anything like that is on the way, because the situation itself is still very bad," Ifo economist Mr Gebhard Flaig said.
Ifo's rise coincided with improvements in business sentiment in Belgium and the Netherlands, although in Italy - the euro zone's third-largest economy - confidence slipped for the second month in a row.
Mr Hans Werner Sinn, president of the institute, said the survey was consistent with the forecast of Germany's six main economic research institutes, which saw a modest upturn from the fourth quarter of this year.
The institutes said the economy would stagnate this year after slipping into recession in the first half, but grow next year by 1.7 per cent.
Mr Sinn said the turnaround in the world economy was helping Germany pull itself out of a slump by improving export prospects, despite the euro's strengthening. He urged the European Central Bank (ECB), which said last week there were signs of a pick up in the euro zone, "not to destroy the upswing" with a premature interest rate increase.
Market reaction to the figures was relatively muted, indicating that traders do not expect the data to trigger any early increase in euro-zone interest rates.
The ECB has held its primary interest rate steady at 2 per cent - a post-second world war low - since June.
Mr Dirk Schumacher of Goldman Sachs said the signs of acceleration in euro-zone activity would bolster the ECB's wait-and-see stance on interest rates. The Ifo index's rise reflected an improved assessment of current conditions by companies, as well as more optimistic expectations. The current conditions component of the index rose from 79.2 to 81.1, its highest level for two years.
Hopes for an upturn were based on optimism about exports as the world economy was set to pick up, and expectations that the government would implement reforms aimed at reviving growth, BDI industry federation chief Michael Rogowski said.
