Germany’s retail sales rose in March compared to the previous month with the boost in purchasing power in households as unemployment declined.

According to the figures reported by the Federal Statistics Office on Monday retail sales rose 0.8 percent in March from February.

This report came last month when the rate of unemployment fell to a record low of 6.7 percent in March from 6.8 percent in February, indicating that in spite of the debt crisis looming over eurozone, there was optimism in businesses in Germany.

Also the business confidence increased in April, indicating that the country's economy was able to withstand the pressures of alarming debt crisis in the eurozone. According to the Ifo Institute for Economic Research at the University of Munich, Germany's business climate index rose to 109.9 from 109.8 in March.

The German economy contracted by 0.2 percent in the fourth quarter of 2011 as compared to the previous quarter as a result of dampened exports and fragile domestic demands. Meanwhile, the leading economic institutes in Germany have raised the country's growth forecast for 2012 to 0.9 percent from 0.8 percent with the anticipation that the economy will avoid recession with increasing domestic demand.

However, economic analysts have warned that sovereign debt crisis threatening the eurozone could have a damaging effect on Germany's economy as well. The situation has worsened due to the rise in oil prices, a result of aggravated tensions between the West and Iran.

In addition, the slowing growth rate in China, one of Germany's largest export markets, has posed another major challenge.

So it is highly anticipated that main impulses for the economy will come from domestic demand and especially from investment and private consumer expenditure.