Germany basks in huge surge of investor confidence

The ZEW thinktank's economic expectations index rose by a whopping 32.2 points in January to stand at minus 21.6 points, it said in a statement.

The result shattered the estimates of even the most optimistic forecasters surveyed by Dow Jones Newswires. On average, analysts had expected a slight increase to minus 49.5 points from last month's minus 53.8 points.

The euro spiked on the foreign exchange markets and the DAX leading index of German shares also enjoyed a solid gain on the news.

“Contrary to repeatedly expressed fears of a recession the assessment of the financial market experts gives reason for cautious optimism that Germany will only experience a dent in economic activity,” ZEW head Wolfgang Franz said.

“Nonetheless, the further development of the debt crisis remains a risk to economic growth,” added Franz.

Despite the spectacular jump, the survey remained well below its historical average of 24.5 points.

“This month's increase suggests that within the next six months, German economic activity is likely to stabilize instead of deteriorating further,” said Franz.

For the survey, ZEW questioned 293 analysts and institutional investors on their view of the economy.

While cheering the results, one analyst warned that the survey took the pulse of investors before a recent raft of bad news from the eurozone.

“The ZEW index is often a good indicator of turning points in the economic cycle, so the improvement is a hopeful sign,” said Christian Schulz from Berenberg Bank.

“However, responses were collected before the S&P downgrade (of nine out of 17 eurozone nations on Friday) and the latest pause for reflection in the negotiations of Greece with its private bondholders,” he added.

Felix Eschwege, from French bank Natixis, characterized the survey as “very unexpected good news,” describing the extent of the bounce as “astonishing.”

This was the second rise in a row after the indicator fell to its lowest level in three years in November 2011 and mirrors a recent spike in European equity markets that have largely shaken off recent ratings downgrades.

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