Germany's economic prospects 'looking brighter'

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German investor confidence rose higher than expected last month, fuelling speculation that conditions in Europe’s largest economy will start to improve after the first three months of next year.

The ZEW Centre for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, climbed to 6.9 from minus 15.7 in November.

Economists had predicted a gain to minus 11.5, according to the median of 38 estimates in a Bloomberg News survey.

The German economy is expected to contract this quarter and stagnate in the first three months of next year, as the sovereign debt crisis curbs demand for its goods in the euro area, the Bundesbank forecast last week.

However the benchmark Dax share index has risen more than 17% since July when the European Central Bank pledged to save the euro and unveiled an unlimited bond-purchase programme.

Ralph Solveen, head of economic research at Commerzbank AG in Frankfurt, told Bloomberg News that Germany faced “a very favourable environment, largely on the back of expansionary monetary policy”.

“Should the sovereign debt crisis continue to ease in the next few months as we expect, this implies a significant revival of the economy in the course of 2013.”