German analyst and investor sentiment leapt to its highest level in 10 months in February, reinforcing signs that Europe's largest economy is returning to growth as the rest of the euro zone faces a mild recession. The ZEW think tank's monthly poll of economic sentiment jumped for the third month in a row, to its highest level since April 2011, smashing expectations and sending the euro to a session high against the dollar.
This contrasted starkly with other European data showing output at factories in the euro zone tumbled in December and Portugal's recession deepened in the last quarter of 2011. A Reuters poll showed the euro zone economy shrinking 0.4 percent in 2012, returning to growth in 2013 with a 1.0 percent expansion. Mannheim-based ZEW said its sentiment index rose to 5.4 from -21.6 in January. This was the first time the index turned positive since May, and compared with a consensus forecast in a Reuters poll of analysts for a gain to -12.0. Official data due on Wednesday is expected to show the economy contracted 0.3 percent in the fourth quarter of 2011. Germany faces a period of weak growth with "significant downside risks to activity", the Organisation for Economic Co-operation and Development said in a report on Tuesday.
"Germany needs to go beyond successful crisis management and address the long-term underpinnings of growth," the Paris-based organisation said, sticking to its forecast for 2012 economic growth of just 0.6 percent. Euro zone industrial production fell 1.1 percent in December from November, partly due to a sharp drop in German output, as the euro zone debt crisis damaged morale among shoppers and businesses alike. Preliminary data on the euro zone's gross domestic product in the fourth quarter will be released on Wednesday and is expected to show a 0.3 percent contraction. Other data on Tuesday showed that the recessions in Portugal and Greece deepened in the fourth quarter of 2011. Greece's economy shrank at an annual 7 percent rate in the last quarter.
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