German business morale improved in January for the first time in seven months as easing supply bottlenecks helped to lift factory output in Europe's largest economy, a survey showed today.

The Ifo institute said its business climate index rose to 95.7 from an upwardly revised 94.8 in December. A Reuters poll of analysts had pointed to a December reading of 94.7.

"The German economy is starting the new year with a glimmer of hope," Ifo President Clemens Fuest said.

Fuest added that company executives were considerably more upbeat about their business outlook while their assessment of the current situation was a bit less optimistic.

The Ifo figures chimed with Markit's purchasing manager index (PMI) from yesterday that also showed a relaxation in supply chains which helped to push up activity in the manufacturing sector to a five-month high in January.

But despite the glimmer of hope for the German economy, Ifo economist Klaus Wohlrabe said it was too early to talk about a turnaround.

Supply shortages in industry, raw materials and preliminary product supply problems as well as delivery bottlenecks have eased slightly, Wohlrabe told Reuters in an interview after the publication of Ifo's monthly business morale survey.

There has also been a significant improvement in industry export expectations, the economist said.

However, prices are not likely to decline as every second company across industry, trade and retail plans further price increases, Wohlrabe said.