FRANKFURT: The German economy, Europe's biggest, ended the year in "festive mood", with confidence rising to a 21-month high and expectations at the highest level for almost three years, data showed on Wednesday.
The Ifo economic institute's closely watched business climate index climbed to 109.5 points this month, the highest level since April 2012.
The previous month, it had stood at 109.3 points.
"The Ifo business climate improved once again. Assessments of the current business situation were somewhat less favourable, but firms expressed greater optimism about future business developments. The German economy is in a festive mood," said Ifo president Hans-Werner Sinn.
Ifo calculates its headline index on the basis of companies' assessments of their current business and the outlook for the next six months.
The sub-index measuring current business slipped to 111.6 points in December from 112.2 points in November.
By contrast, the outlook sub-index rose to 107.4 points, its highest level since March 2011.
"Germany's economy is ending the year on a very strong note," said Berenberg Bank economist Christian Schulz.
The outlook sub-index "tends to lead business investment very reliably, pointing to an intensifying surge in investment this winter," he said.
According to Ifo, the construction and manufacturing industries posted strong gains, while sentiment in the retail and wholesale sectors eased somewhat, "potentially dampening the most optimistic expectations for the Christmas sales season," Schulz said.
The expert believed that the European Central Bank's "extremely expansive monetary policy is starting to reach the real economy" and the Ifo readig "points to a further acceleration in investment momentum."
ING DiBa economist Carsten Brzeski said "nothing can ruin German business optimism."
He said: "Another exciting year for the German economy draws to a close."
Brzeski continued: "With today's Ifo, the German economy starts an early but well-deserved Christmas break. The next important macro data will only be released next year. The Ifo and other confidence indicators have created a crackling anticipation of the economy's growth prospects going into 2014. Let's hope that there won't be a rude awakening after the holidays."
Capital Economics economist Jonathan Loynes was more cautious.
"December's Ifo survey is consistent with other survey evidence pointing to steady but unspectacular growth in the German economy," he said.
Loynes warned that the latest rise in the Ifo index was once again driven by the expectations index.
"Accordingly, the rise in the survey still seems to be built largely on hope, rather than reality.
"Overall, then, the Ifo survey provides another indication that the German economy is doing better than its neighbours, especially France. But there are few signs that the economy is building up the momentum needed to ensure a strong recovery in the eurozone as a whole," Loynes concluded.
Natixis economist Johannes Gareis said that "all in all, today's Ifo paints a rosy picture on the German economic outlook. After growth of 0.5 percent in this year, the German locomotive should significantly gather steam in 2014."
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