An index which measures German business confidence recorded the strongest rise for 20 years in July.
The closely watched Ifo index of business sentiment rose to 106.2 points from 101.8 in June. Germany's economy shrank by almost 5% last year, but has been recovering due to strong exports.
'The rise is the biggest since German reunification. Firms are reporting significantly more favourable business conditions than last month,' the Munich-based Ifo institute said. 'The German economy is in party mood again,' it added.
The result was much better than expected, with most economists having expected a slight fall.
