Confidence among investors in Germany soared to its highest level in almost 17 years in August, as Europe's largest economy accelerates its rebound from the crushing impact of the coronavirus pandemic.

The ZEW institute's monthly barometer measuring economic sentiment leapt to 71.5, based on a survey of 178 analysts, the highest since January 2004. The reading is a rise of 12.2 points from July, when it declined slightly.

The survey's figure for investor confidence in the eurozone also creeped up -- by 4.4 points to 64.0.

"Signs of a strong economic recovery in the summer are continuing to appear, in line with a still quite optimistic mood on the financial markets," according to Uwe Burkert, chief economist at Stuttgart-based bank LBBW.

Analysts had predicted a small fall in investor confidence from 59.3 to 58.0, according to a survey by FactSet.

Following a 10.1 percent plunge in German GDP in the second quarter compared with the first three months of 2020, there was a healthy uptick in industrial production and exports in June, according to figures released last week.

Many German firms have quickly adapted to the coronavirus
Many German firms have quickly adapted to the coronavirus POOL / Hendrik Schmidt

"Hopes for a speedy economic recovery have continued to grow, but the assessment of the situation is improving only slowly," ZEW President Achim Wambach said.

Domestic sectors should expect to recover, Wambach said, but in a note of caution, he added: "The still very poor earnings expectations for the banking sector and insurers regarding the coming six months give cause for concern."

"The danger of an expectation bubble, triggered by massive fiscal and monetary-policy impulses, which primarily boost the financial markets, is not off the table," Burkert noted.

The survey by Mannheim-based ZEW crashed to its lowest rating since the financial crisis in March as pandemic lockdowns first started to impact the economy.

But as the country emerged from the worst of the restrictions put in place, and with the help of large fiscal stimulus measures, confidence dramatically improved from April onwards.

However there may be further trouble ahead for the economy, with the ZEW survey's assessment of the current economic situation in Germany falling slightly by 0.4 points to -81.3. The corresponding figure for the eurozone also dropped slightly.