German business sentiment unexpectedly rose in January to its highest level in 11 months as firms' expectations brightened on signs of stronger domestic demand, the Ifo economic institute said today.
Munich-based Ifo said its German business climate index, based on a monthly survey of some 7,000 firms, climbed to 96.4 from 96.2 in December.
It was the index's highest level since February 2004, and its second monthly rise in a row. Economists polled by Reuters news agency had expected the index to dip to 96.0 after it unexpectedly rose in December.
"The improved expectations indicate a continuation of the upswing, supported by somewhat stronger domestic demand," said Ifo president Mr Hans-Werner Sinn in a statement.
A separate component measuring business expectations improved to 97.6 from 96.5 in December.
"Although the euro-dollar has shifted into reverse gear recently, the latest increase in the headline figure is definitely a big surprise," said HVB Group economist Mr Andreas Rees.
The euro was broadly steady on the data, while March Bund futures dipped briefly.
The euro has dropped around six cents, or four per cent, since hitting a record high against the dollar above $1.36 at the end of December.
At around $1.30 it is also three cents lower than it was in mid-December, during the last Ifo poll. Germany's government fears the strong euro could stop Europe's largest economy reaping benefits from painful reforms it has implemented in the past two years to boost growth, according to an economic report to be released today.