(Adds analyst quotes, details, background)
By Krista Hughes
MANNHEIM, Germany, March 17 (Reuters) - German analyst and investor sentiment rose unexpectedly in March to its highest level in over 1-1/2 years, boosting hopes Europe's largest economy will start recovering towards the middle of the year.
The Mannheim-based ZEW economic think tank said on Tuesday
its monthly poll of economic sentiment for Europe's biggest
economy rose to -3.5 from -5.8 in February, pushing the euro
higher against the dollar
The reading was the highest since the summer of 2007.
"This is a positive surprise," said DekaBank economist Sebastian Wanke. "It is a good sign that analysts are not becoming overly gloomy and that no depression is breaking out."
The index was based on a survey of 291 analysts and
investors conducted between March 2 and March 16. The consensus
forecast in a Reuters poll of analysts last week was for the
headline index to fall to -7.4 from the previous month
A separate ZEW index measuring assessment of current conditions went deeper into negative territory, falling to -89.4 from -86.2 in February but staying a sliver above the consensus forecast that saw it dropping to -90.0.
"The bottom of the recession is likely to be reached this summer," ZEW President Wolfgang Franz said in a statement. "The economic situation is extremely bad, but there are first signs of hope. They should not be played down."
LOW POINT
Simon Junker from Commerzbank said data points to the economy hitting such a low early in 2009 that it can only stabilise later in the year.
"The situation in the fourth quarter of 2008, and unfortunately also in the current quarter, is so bad that by comparison, it can only get better," he said.
The German economy contracted by 2.1 percent in the fourth quarter in its worst quarterly performance since reunification in 1990, and some forecasters say it is set for a similar flop in the first quarter.
Earlier on Tuesday, the Berlin-based DIW economic research institute said it expected a 2.2 percent contraction in the first three months of the year, while the Halle-based IWH institute saw a 4.8 percent drop over the full year.
Recent hard data also points to a downbeat first quarter -- industry orders fell for a fifth month in a row in January, and industrial output fell by a record 7.5 percent in the same month as foreign demand wilted.
"Incoming orders point to two trends: the first and second quarters will remain weak. But then we will be gradually reaching a low point," Commerzbank's Junker said.
German companies, especially exporters, are scrambling to reassess their outlook for a year in which the major economic forecasters say the world economy will contract, although many firms are already trying to look beyond the hard times ahead.
Linde
The government expects the economy to contract by 2.25 percent this year, but some private economists forecast it could fall by up to 5 percent. Since World War Two it has never contracted by more than one percent in a single year. (Writing by Brian Rohan, editing by Stephen Nisbet)