A bright outlook for exports and domestic demand points to a balanced growth picture for Germany, though the country's current economic mood is a touch less upbeat than expected, sentiment data showed.
Today's survey from the ZEW economic think tank showed headline analyst and investor sentiment improved in December to 4.3 from 1.8 in November, beating the consensus forecast of 4.0 per cent in a Reuters poll.
"Besides momentum from export activities, economic stimulus is also expected from domestic demand, supported by a positive labour market development and low real interest rates," ZEW president Wolfgang Franz said in a statement.
Separately, the Munich-based Ifo institute said rising domestic investment and private consumption would drive the German economy forward in 2011 as it raised its growth forecast for this year and next.
The findings reinforced an increasingly stark contrast between the outlook for Europe's dominant economy and the states on the single currency zone's periphery.
Germany suffered its biggest postwar recession in 2009 when the economy contracted by 4.7 per cent. Driven by exports and helped by stronger-than-usual consumer sentiment, it has emerged quickly from the slump, leaving many of its euro zone peers trailing.
A separate ZEW index tracking current conditions rose to 82.6 from 81.5 the previous month, less than the 84.0 forecast.
The upbeat message from the ZEW and Ifo chimed in with a positive outlook from flagship German tourism group TUI AG, whose CEO said trading for the current winter season was up year-on-year in all its source markets.
"With private consumption picking up, the recovery is broadening further and should continue at its current pace," said Carsten Brzeski from ING Financial Markets. "Any slowdown in 2011 should be rather limited."
Austerity measures to reduce public sector deficits are squeezing activity in a number of European states, but Germany is proving more resilient so far to budget cuts, a subdued global trade environment and a strong euro.
Its growth slowed to 0.7 per cent in the July-September period but the upswing remains on a broad and firm footing, pointing to solid, if unspectacular expansion in coming quarters.
But recent indicators suggest Germany is now poised to strengthen its performance with domestic demand playing an ever-more important role - as France and other European Union peers have urged.
Ifo said it now expects gross domestic product to expand by 3.7 per cent this year and by 2.4 per cent in 2011 - up from June forecasts for growth of 2.1 per cent this year and 1.5 per cent next year.
"For now it seems that investors see the recent upbeat global data and the weaker euro as more than offsetting the negative effects of the euro zone fiscal crisis on the German economy," said Ben May from Capital Economics.
EU leaders are due to discuss the crisis at a summit on Thursday and Friday, with one senior EU source saying intense efforts were under way behind the scenes to find ways to shield Spain from market pressure expected to mount early next year.
Reuters