FRANKFURT: Investor sentiment in Germany is at it highest level in 12 months, buoyed by the feel-good effects of the European Central Bank's latest policy moves and positive growth figures, data showed on Tuesday.
However, concerns over an escalation of the crisis in Ukraine and fears of a possible Greek exit from the euro, or "Grexit", could begin to sour sentiment again, and soon, analysts warned.
The widely watched investor confidence index calculated by the ZEW economic institute rose by 4.6 points to 53.0 points in February, its highest level since February 2014, ZEW said in a statement.
"Quantitative easing by the European Central Bank and unexpectedly high economic growth in the fourth quarter of 2014 have improved sentiment among financial market experts," said ZEW president Clemens Fuest.
"On the other hand, the intensification of the Ukraine crisis and the collision course of the new Greek government are dampening expectations," he added.
Analysts had, in fact, been pencilling in a stronger increase in this month's ZEW index to around 55.0 points.
Last month, the ECB announced a massive bond purchase programme, known as quantitative easing or QE, in a bid to boost inflation in the 19 countries that share the euro.
And sentiment has also been boosted by stronger than expected German economic growth of 0.7 percent in the fourth quarter of last year.
For the survey, ZEW questions analysts and institutional investors about their current assessment of the economic situation in Germany, as well as their expectations for the coming months.
The sub-index measuring financial market players' view of the current economic situation in Germany jumped by 23.1 points to 45.5 points in February, its highest level since July 2014.
- 'Grexit' worries -
Natixis economist Johannes Gareis said the latest increase in the ZEW barometer "echoes a growing confidence of financial investors in the German economy.
"However, the weaker than expected outcome for February suggests that investors do not completely cast off any worries about the current Greek crises and the increasing risks of a 'Grexit'," Gareis said.
While the expert conceded that the ZEW was "usually a poor indicator of the strength of the German economic upswing," he said: "The fourth consecutive increase in the expectation and the current conditions index suggests that the party for the German economy is far from being over."
Indeed, the German economy will continue to benefit from the current economic environment, with growth bolstered by low oil prices, a low euro exchange rate and the ECB's QE programme, Gareis said.
Berenberg Bank economist Christian Schulz said the renewed rise in the ZEW index "provides evidence that the Greek crisis is not having much economic or financial impact on the rest of the eurozone yet."
Capital Economics economist Jessica Hinds agreed.
The further improvement in sentiment "provides some reassurance that confidence in the German economy is holding up despite the ongoing turmoil in Greece," she said.
"However, there is a clear risk that the improvement in the ZEW seen over the past few months could be short-lived if Greece and the European authorities fail to reach a deal, as is looking increasingly likely," she warned.
Showdown debt talks between Athens and its creditors collapsed on Monday, raising fears the country may crash out of the eurozone.
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