German business morale rose far more than forecast in November, reaching its highest level since April 2012, in a sign that Europe's largest economy is steadily recovering after a weak start to the year.
The Munich-based Ifo think tank said its business climate index, based on a monthly survey of some 7,000 firms, rose to 109.3.
This was better than the consensus forecast for a rise to 107.7 and surpassed even the highest estimate for a reading of 108.5. The November figure compared with a reading of 107.4 in October.
Earlier, new figures showed that a robust rise in domestic demand overshadowed weak exports to drive a 0.3% expansion in the German economy in the third quarter.
This gives the German government ammunition in its showdown with Brussels over euro zone trade imbalances.
The EU is investigating Germany's persistently high current account surplus amid criticism that it relies too heavily on exports, yet today's breakdown showed that net trade deducted 0.4 percentage points from third-quarter growth.
Domestic demand was the main growth driver, rising 0.7% in the quarter. Investment, which began the year sluggishly, rose by a robust 3%, propelled by a strong increase in construction.
Private consumption added 0.1 percentage points to GDP. A robust labour market, moderate inflation and strong wage hikes have boosted household spending in Germany.
Berlin is relying on domestic demand to prop up growth this year as the traditionally export-driven economy suffers from the weakening demand from its euro zone partners and a slowdown in emerging markets.
The German economy put in a stellar performance during the early years of the euro zone crisis but growth slowed last year. After stagnating in the first quarter of this year, it posted strong growth of 0.7% between April and June but that was mostly due to weather-related catch-up effects.
Data last week showed economic growth in Germany helped the euro zone stave off stagnation as France and strugglers like Greece and Italy contracted. But German growth was only marginally stronger than bailout recipient Portugal's 0.2% expansion.
Economists expect solid growth in the fourth quarter. The Bundesbank said this week Germany was growing solidly and its upturn would likely be consolidated in the coming months thanks to domestic demand and an improved global environment.
This week a survey showed the private sector's expansion gaining traction in November, suggesting the economy could expand by 0.5% in the final three months of the year. Another survey showed investor sentiment rising to its highest level in four years in November.
But recent hard data, much of it backward-looking, has been more mixed, with industrial orders, exports and retail sales rising, though imports have fallen and unemployment has climbed.
The German government expects growth of 0.5% this year and 1.7% next year.