Brandenburg Gate
Brandenburg Gate. Reuters

German investor confidence jumped surprisingly this month above its long-term average to a level not seen since May 2010, the ZEW Center for European Economic Research said on Tuesday. European analysts, however, responded cautiously.

The ZEW’s economic sentiment indicator, which gauges investors’ six-month outlook, surged by 24.6 points this month to 31.5. Analysts had expected a 12 point increase.

The report means that a significant majority of investors sees conditions improving after the fourth quarter’s estimated 0.5 percent quarterly decline in German GDP.

“The financial market experts seem to expect that the positive sentiment on the financial markets may soon result in companies realizing investments that had been postponed early on,” ZEW President Wolfgang Franz said. “However, the economic situation of important trade partners is rightly considered to still be weak. This suggests that the German economy will further grow at a moderate level in 2013.”

The health of the No. 1 economy in the euro zone, which is now in recession, remains a subject of intense interest. Should Germany stumble economically it would have an outsized effect on other euro zone economies.

While the ZEW indicator has been a “pretty good indicator" of turning points in the economic cycle in the past, it has often failed to predict the strength of recoveries or the severity of downturns, Capital Economics said.

Further, the ZEW current condition index posted a much smaller rise, from 5.7 to 7.1, Capital Economics said, adding that the ZEW survey polled investors, not business leaders.

“While both of those surveys (the investor confidence and current condition) improved in December, they paint a mixed picture of the economic situation at best, with the (purchasing managers index) pointing to broad stagnation in German GDP and the IFO consistent with modest annual growth of about 1 percent,” Capital Economics said.

“And, for the time being at least, less timely hard data on trade and industrial production are still weakening rather than strengthening. In all, then, while January’s rise in sentiment is encouraging, it is too soon to conclude that the worst is over for Germany.”