German economy pulls away from European pack

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"Germany is leaving the winter slump earlier than rest of euro zone," said Christian Schulz of Berenberg Bank. "Germany fundamentally has a high level of competitiveness."

"The economy only contracted because euro zone crisis derailed whole European continent and beyond."

Mannheim-based ZEW said its sentiment index rose to 5.4 from -21.6 in January. This was the first time the index turned positive since May, and compared with a consensus forecast in a Reuters poll of analysts for a gain to -12.0.

Germany's export-driven economy recovered quickly from the 2008/09 financial crisis, outpacing peers, but it began to feel the pinch late last year due to a global slowdown and uncertainty over the euro zone debt crisis.

Official data due on Wednesday is expected to show the economy contracted 0.3 percent in the fourth quarter of 2011.

Germany faces a period of weak growth with "significant downside risks to activity," the Organisation for Economic Co-operation and Development said in a report on Tuesday.

"Germany needs to go beyond successful crisis management and address the long-term underpinnings of growth," the Paris-based organisation said, sticking to its forecast for 2012 economic growth of just 0.6 percent.

However, forward-looking surveys show that the economy will likely avoid a recession and pick up again at the beginning of 2012 on the back of a stabilizing global economy and optimism over the euro zone sovereign debt crisis.

"The recent slowdown in economic growth isn't likely to last in the view of the surveyed financial market experts," said ZEW president Wolfgang Franz in Mannheim. "There is a good chance that the German economy will experience a slight uplift in the second half of 2012."