German business morale improved for the third consecutive month in January, rising to its highest level in over half a year and adding to evidence Europe's largest economy is gathering speed again after contracting in the fourth quarter of last year.

The Munich-based Ifo think tank said today its business climate index, based on a monthly survey of some 7,000 firms, rose to 104.2 in January after 102.4 in December.

That beat the median forecast in a Reuters poll of 40 economists for the index to climb to 103.0 and matched the highest estimate in the poll. The data sent the euro to a fresh 11-month high against the dollar and Bund futures falling.

"The crisis is over. At least in Germany," said Carsten Brzeski, economist at ING in Brussels. "The contraction in the fourth quarter of 2012 seems to have been short-lived."

Germany's economy held up strongly during the first two and a half years of the euro zone debt crisis but its engines sputtered in the second half of last year as firms postponed investment and exports suffered on a gloomy economic outlook.

The German economy shrank by 0.5 per cent in the fourth quarter of the year, preliminary data showed earlier this month, but as concerns fade that the currency region could break apart and as the economic outlook elsewhere brightens, economists are betting on a return to growth early this year.

Firms' expectations improved for the fourth month running as companies become more hopeful about business this year. Their views on current conditions also climbed, after falling last month, increasing to a better-than-expected 108.0 from 107.1.

Germany's rebound is not expected to come with a roar, however, and the government as well as the Bundesbank expect 2013 growth of 0.4 per cent, on the lower end of economists' forecasts.

Germany's central bank said this week that the slump should be short-lived and that Germany's economy may already have bottomed out, in contrast to the currency bloc as a whole, which is in its second recession in four years.

German private sector activity in January jumped to its highest level in a year on brisk business in services and Chris Williamson, economist at Markit, which compiled the data, said that indicated the German economy had already seen the worst.

Reuters