AFP

FRANKFURT GERMAN investor confidence surged to the highest level for 21 months in March, amid growing optimism that Europe’s top economy can shrug off the worst of the debt crisis, data showed on Tuesday.

The ZEW think tank’s economic expectations index rose by 16.9 points in March to stand at plus 22.3 points, the highest level since June 2010, the organisation said in a statement.

Analysts had been pencilling in a much more modest increase to around just 10 points.

It was the fourth month in a row that the widely watched sentiment barometer has risen “and shows that the positive outlook for the German economy is hardening,” said ZEW president Wolfgang Franz.

“Financial market experts feel themselves strengthened in their belief that the recently slower growth momentum will not harm the generally robust German economy,” Franz said.

“The eurozone crisis appears to be taking a breather. In Germany, the favourable labour market situation should ensure that domestic demand will continue to drive the economy,” Franz added.

“Nonetheless, risks persist given the weakness in key European economies and distortions in the banking sector,” he cautioned.

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 current assessments slipped by 2.7 points to 37.6 points.

The ZEW index is the only barometer of investor confidence in Germany and this month’s reading was based on responses from 285 analysts.

A frequent criticism against it is that the index can be volatile and is therefore not particularly reliable.

Other business confidence indices, such as the purchasing managers’ index or the all-important Ifo survey, which is based on as many as 7,000 responses in the real economy, are seen as more accurate indicators.

The latest Ifo index is scheduled to be released next week.

“The March rise in ZEW investor sentiment will add to hopes that the German economy is holding up surprisingly well as others in the eurozone slide back into recession,” said Capital Economics economist Jennifer McKeown.

However, there was still very little evidence of a consumer recovery in Germany and households have continued to save rather than spending and unemployment has now started rising, the analyst said.

“Accordingly, even if Germany continues to fare relatively well, there is little hope that this will drag the rest of the eurozone out of recession,” she concluded.

Annalisa Piazza at Newedge Strategy suggested investor confidence was being boosted by the second massive injection of liquidity into the banking system by the European Central Bank.