"The president's health is improving, and he is responding well to treatment," said Najm al-Din Karim, governor of Iraq's northern province of Kirkuk.
"He is speaking, reading, eating and undergoing physiotherapy," Karim said, and added that Talabani's memory was recovering and he was able to identify those around him.
"The German medical team is optimistic his health will continue to improve. His return to Iraq depends on the decision of the medical team in Berlin."
Talabani, 79, travelled to Germany in December after suffering a stroke, the latest in a series of health problems he has suffered in recent years.
His health has major political implications in Iraq, where he has sought to bring together feuding factions, Sunni and Shiite, Arab and Kurdish.
Talabani, who was born in November 1933, underwent successful heart surgery in the United States in August 2008. The previous year, he was evacuated to neighbouring Jordan to be treated for dehydration and exhaustion.
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He has also travelled to clinics in Europe in the past for treatment for a variety of ailments.