BERLIN German business morale brightened more than expected in May to hit its highest level on record since 1991, a survey showed on Tuesday, with the election of Emmanuel Macron as French president viewed as a major relief for Europe's largest economy.
France is Germany's second-most important single trading partner after China and the defeat of France's far-right, euro-sceptic Marine Le Pen by the centrist and pro-European reformer Macron has boosted confidence across the euro zone.
The Munich-based Ifo economic institute said its business climate index, based on a monthly survey of some 7,000 firms, rose to 114.6 from an upwardly revised 113.0 in April.
The May reading came in stronger than a consensus forecast of 113.1 in a Reuters poll.
"Economic activity in Germany remains very brisk," Ifo chief Clemens Fuest said in a statement. He added that the surge in the Ifo index combined with other key economic indicators pointed to economic growth of 0.6 percent in the second quarter.
Managers' assessments of the current business situation and their outlook for the coming six months both improved markedly, the survey showed.
Ifo economist Klaus Wohlrabe pointed to Macron's victory.
"This positive news has provided a tailwind. It is a signal that the European Union is not under acute pressure, as it was a year ago," Wohlrabe said.
He added neither the prospect of Brexit nor the policies of U.S. President Donald Trump had yet had concrete effects on the German economy.
A sector breakdown of the Ifo figures showed the main boost came from improved sentiment in manufacturing. Optimism in wholesaling and construction also edged up but deteriorated in retailing.
"Today's strong German data add to the evidence that, not only the German economy, but the entire euro zone economy could become the positive growth surprise of 2017," ING bank economist Carsten Brzeski said.
"With political risks now ebbing away, economics have quickly taken over," he added.
The German economy picked up steam in the first quarter and grew by 0.6 percent on the quarter, helped by strong exports, booming construction and higher household and state spending, data released earlier on Tuesday showed.
This will likely help to burnish Chancellor Angela Merkel's economic credentials as she gears up for national elections.
In another positive sign, Germany's DIHK Chambers of Industry and Commerce raised its 2017 growth forecast for the German economy to 1.8 percent from its previous estimate of 1.6 percent.
(Reporting by Michael Nienaber; Editing by Paul Carrel and Raissa Kasolowsky)