There is no reason to be downbeat about the German economy this year as consumers and investors expect growth to resume after a contraction at the end of last year, the Bundesbank said on Monday. German companies are also more optimistic, especially those in the retail and wholesale sectors, after an improvement in surveys of household sentiment, the German central bank said in its monthly report for February. "Obviously many consumers and investors share the assessment that the current sideways movement will be transformed again into a process of growth," the bank said.

"Companies also began the new year with more favourable expectations, especially in retail and wholesale." Europe's biggest economy unexpectedly contracted in the final three months of last year, after stagnating in the July to September period, preliminary Federal Statistics Office data showed last week.

Demand from companies for investment goods appeared to weaken again at the end of the year, after a strong gain in the third quarter, the Bundesbank said. Private consumption posted a slight gain, but it is not yet possible to extrapolate a lasting increase in consumer spending, it added. Export growth should still help to underpin Germany's expansion despite the appreciation of the euro.

Copyright Reuters, 2005