German economic sentiment unexpectedly rebounded in November following a continued decline in the past two months.

The ZEW Indicator of Economic Sentiment for Eurozone’s largest economy rose 9 points to 1.8 points in November, from minus 7.2 points in October.

Markets had expected the index in Germany to slightly rise to minus 6 points in November.

On the other hand, economic sentiment in the 16-nation Euro area rose sharply by 12 points to 13.8 points in November against the market expectations of 0.2 points gain.

“November’s rise in ZEW investor sentiment suggests that Germany has remained encouragingly resilient to the periphery’s woes for now. The fact that the index is back in positive territory means that more investors expect conditions to improve in the next six months than worsen,” said Jennifer McKeown, an economist with Capital Economics.

However, the ZEW Indicator in Germany still stands much below the historical average of 26.9 points.

“With the level of activity still much lower than before the recession, this wouldn’t normally be too much to ask. But in the current environment of weakening global demand and growing fears for the euro-zone’s periphery, it’s really quite encouraging,” said McKeown.

The indicator for current economic situation in Germany rose by 8.9 points to 81.5 points, reflecting further improved conditions from previous month.

In fact, the current situation of the German economy is exceptionally good. Nevertheless, there is no need to be over-optimistic with respect to the development of Germany's economic activity next year. Indeed, the forecast for growth in real GDP in 2011 is 2.2 percent but in fact the dynamics of economic growth will be considerably lower,” said Wolfgang Franz, ZEW President.

German gross domestic product (GDP) growth slowed to 0.7 percent in the third quarter after increasing sharply by a revised 2.3 percent in the second quarter, the Federal Statistics Office said on Friday.

According to the German economic ministry’s estimate in October, the economy will see the fastest growth in over 19 years at 3.4 percent in 2010, boosted by stronger exports.

German economy had shrunk by 4.7 percent last year -- its worst performance since World War II.