The Munich-based Ifo economic institute said on Friday
its business climate index rose to 110.3 from 109.8 in December, the strongest
since records started for reunified Germany at the start of 1991 and
confounding expectations for a flat reading.
Separately, statistics office data in France showed
business confidence also rose strongly in the euro zone's second largest
economy, boosted by a surge in manufacturing sentiment.
"Manufacturers have made a significant leap forward
and have now fully recovered from the crisis," Ifo economist Klaus
Abberger said in an interview.
The Ifo index is based on a monthly survey of some 7,000
firms and is one of Europe's most closely-watched releases by financial
markets. The euro extended gains against the dollar to briefly hit a two-month
high after the data.
"German business confidence surprised and continued
its impressive performance of the last two years, increasing to a new record
high," said Carsten Brzeski of ING.
"The heaviest snowfalls in more than 40 years only
weighed on companies' current assessments but not on their optimism."
Ifo's index on current conditions inched lower to 112.8
from 112.9 last month, while its expectations reading on the outlook for the
next six months rose to 107.8 from 106.8 in December.
The upbeat Ifo reading topped off a run of bullish data
that has shown the German economy benefiting from a rebound in emerging
economies and bucking the trend of other rich nations, including much of the
euro zone, who are still struggling.
The ZEW survey earlier this week also showed German
investors increasingly optimistic and the government has raised its 2011 growth
forecast, predicting the recovery will broaden to include an upturn for
previously lackluster domestic demand.
Abberger said German manufacturers, who have been helped
by the weaker euro, were upbeat about business opportunities abroad and had not
as yet seen a downturn related to the bloc's sovereign debt crisis.
Budget cutbacks and uncertainties over banking systems
have already dampened growth in the countries most effected by the crisis.
But German firms remain upbeat despite looming budget
cutbacks that will take in the whole continent this year, with trade with
emerging countries outside of the European Union picking up.
Steelmaker ThyssenKrupp is on track to meet its goals for
this year after posting a rise in quarterly profit, it said on Friday as demand
for German capital goods remains robust.
Of 30 blue chip DAX companies, 22 beat market forecasts
in the quarter to end-September, while 15 hiked their outlooks and six kept
them unchanged. The DAX index itself rose to its highest since May 2008 this
week.
"It's the third record month in a row," said
Andreas Scheuerle of DekaBank. "We've never been as close as this to a self-sustaining
upturn. The only thing missing now is a strong upturn in private consumption.
But the chances for that are good as well."
Evidence suggests Germany's domestic economy is
contributing more to the recovery than previously when exports were the sole
driver of growth but focus is shifting to private consumers who are yet to
start spending more.
