BERLIN (dpa-AFX) - Despite the euro area heading to another recession, German economic sentiment improved unexpectedly at the close of the year, marking an end to a nine-month downward trend, on hopes that the EU summit last week would lead to a solution to the debt crisis, results of a closely watched survey showed Tuesday.
The economic sentiment index rose 1.4 points to -53.8 in December from a three year-low, the Mannheim based Centre for European Economic Research (ZEW) said. Economists had expected the index to dip to -55.8.
The negative balance still suggests that the economic situation will weaken over the coming six months and the reading continues to stay below its historical average. The uncertainty over the debt crisis has already been reflected by the negative balances over the previous months.
The financial market experts expect the economic activity to slow, but not to plunge during the next six months, observed ZEW President Wolfgang Franz. The decisions of the latest EU summit may have improved the experts' expectations.
'Subject to a consensus on crucial details, these decisions are an important step towards an efficient institutional framework for the currency union,' added Franz.
EU leaders last week agreed to establish a new 'fiscal compact' to address debt crisis, while the U.K. dissented, seeking protection for the nation's financial sector. Also they agreed to boost the International Monetary Fund resources by EUR 200 billion.
Meanwhile, the current conditions index fell 7.4 points to 26.8 points in December. The expected reading for December was 31.
Economic expectations for the Eurozone climbed five points in December to -54.1 points. On the other hand, the indicator for the current economic situation dropped by 4.3 points to -44.1 points.
Amid fears of recession, the European Central Bank last week slashed interest rates for the second time in two months to stimulate the euro area.
The largest Eurozone economy expanded 0.5 percent in the third quarter. The European Commission projects 0.8 percent growth for Germany next year. Last week, Bundesbank lowered its 2012 growth outlook sharply to 0.6 percent from 1.8 percent.
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