A German economic institute forecast the euro zone's largest economy would revive early next year after its key forward-looking indicator jumped sharply in July.
The index, from the Mannheim-based Centre for European Economic Research (ZEW), is seen as a useful indicator of sentiment about prospects for Europe's largest economy as it is based on a survey of institutional investors and analysts.
The ZEW institute's expectations indicator rose 20.6 points to 41.9 points, its seventh consecutive rise, boosted by a stock market rebound and the government's reform plans, the institute said today.
The median forecast of analysts polled by Reuters was for a rise to 25. Forecasts ranged from 21.3 to 30.
ZEW said the reading signalled that Germany was emerging from the economic doldrums and was a sign the economy would pick up at the start of 2004.
"Rising stock prices, the slightly weaker euro and progress in the reform debate contributed to the new-found optimism," the ZEW president, Mr Wolfgang Franz, said.
Germany's blue-chip DAX has been Europe's best-performing stock market index since mid-March, gaining 53 per cent compared with France's CAC 40's 31 per cent rise and the pan-European FTSE Eurotop 300's 27 per cent.
Mr Franz said the weaker euro, which has slipped from an all-time high of $1.19 at the end of May, also helped boost sentiment.
Economists said government plans to accelerate some 15 billion euro's worth of tax cuts by a year and the weaker euro, which has eased the pressure on Germany's exporters, will have contributed to the upturn in sentiment.