German business sentiment surged to its highest level in 16 months in August.
The rise was driven by a pickup in the manufacturing sector, and suggested that Europe's largest economy is gaining momentum following strong growth in the second quarter.
The Ifo think tank said its business climate index, based on a monthly survey of some 7,000 firms, rose to a better than forecast 107.5 in August, its fourth consecutive rise and the highest level since April 2012.
That was up from 106.2 in July and came in just below the highest estimate in the Reuters poll of 33 economists of 107.8.
"The German economy moved up a gear," said Ifo economist Kai Carstensen. "Companies are more satisfied with their current business situation. Their optimism regarding future business developments - although slightly cautious - also grew."
A bastion of strength in the early stages of the euro zone crisis, the German economy slowed to a halt at the end of last year and narrowly avoided recession early in 2013. But it grew at its strongest rate in more than a year in the second quarter, helping the euro zone as a whole out of its one and a half year recession.
Ifo economist Klaus Wohlrabe said the euro zone recovery was having a positive effect. Manufacturers expected their exports business to improve and said their current business conditions were "considerably better than last month".
Other data have pointed to a pick-up in German economic activity, however with export expectations still subdued.
Many economists now believe that the German economy will expand at a faster rate than the government's current forecast of 0.5% growth this year, but expect a slight slowdown from the pace in the second quarter.
