The Munich-based Ifo economic institute said it was bringing “good tidings” with the announcement that its closely watched business sentiment index defied analysts’ expectations for the second month in a row and rose to 107.2 points in December from 106.6 in November.

Analysts had been projecting a fall in the index to about 106 points.

However, companies “continue to view their current business situation as favourable. Business expectations have improved for the second month in a row,” said Ifo president Hans-Werner Sinn.

“The German economy appears to be successfully defying the downturn in western Europe. These are good tidings for Christmas,” Sinn said.

Indeed, the Ifo data was not the only piece of good news to come out of Germany on Tuesday.

Earlier, a separate survey showed that consumer confidence is also holding up in the face of the eurozone debt crisis as rising employment and incomes helped to offset looming recession fears.

The centre for consumer consumption, GfK, released its latest index of household confidence, with the barometer forecast to remain steady at 5.6 points in January, unchanged from December.

“There can be no talk of a crash as in 2008,” said Ifo chief Sinn.

“Rather, stabilisation tendencies are beginning to emerge. In fact, companies are more positive about their outlook for the next six months and the opportunities for export business are also looking better.”

Sentiment in the retail sector in particular had improved sharply, “pointing to good Christmas sales,” Ifo said.

Ifo calculates its headline index on the basis of companies’ assessments of their current business and the outlook for the next six months.

The sub-index measuring current business held steady at a high 116.7 points and the outlook sub-index rose to 98.4 points, their highest level since August.

Christian Schulz, senior economist at Berenberg Bank said that following other leading indicators, such as the ZEW investor sentiment index last week, the Ifo data offer further “evidence of a stabilisation.”

“In combination with resilient consumer confidence, it emerges that German domestic demand remains strong on the back of good economic fundamentals,” Schulz said.

“Unemployment remained very low, oil prices had stabilised and real incomes were rising,” he added.

“Private consumption and construction investment may cushion the economic downturn triggered by the euro crisis. As long as the crisis does not deteriorate, Germany may only see mild contraction in the winter,” Schulz said.

AFP/jcw