The ZEW economic research institute said its investor sentiment index rose to minus 45.2 points this month from minus 53.5 points in November, coming in better than expected again after a slight surprise in the previous month. Analysts had forecast a drop to minus 55 points in November.
Mannheim-based ZEW said the improvement of 8.3 points "signals that the worries about a further aggravation of the recession in the middle of 2009 seem to be limited."
The interest rate cuts of the central banks worldwide and the economic rescue packages should bolster the economic development," its statement added.
The index hit a record low of minus 63.9 points in July but the European Central Bank has slashed its main interest rate to 2.50 percent since then and the German government has unveiled banking and general economic rescue plans.
ZEW president Wolfgang Franz said nonetheless that "the German economy is slipping deeper into the recession. There is great uncertainty about the pattern of the business cycle in the next year."
A measure of current conditions as seen by financial sector specialists fell sharply this month to minus 64.5 points from minus 50.4 points in November.
For mid-2009, financial analysts estimated economic conditions would be comparable to those at present, Franz added. "The government is well-advised to launch a growth package, which, for example, includes infrastructure projects, instead of building [just an economic straw fire by distributing consumption vouchers," he said.
The poll was taken against a backdrop of recession in Europe's biggest economy, with auto manufacturers in particular hard hit by a sharp drop in demand worldwide and increasing divisions within the coalition government.
On Sunday, Economy Minister Michael Glos defied Chancellor Angela Merkel by issuing an urgent call for quick tax cuts to battle a deepening recession. Many have complained that Merkel has not moved faster to help Germans hit by the economic slowdown and her government partners are beginning to worry owing to general elections that are scheduled in September. "A tax cut for average earners ahead of the election would send the right message," Glos told the mass-market Sunday newspaper Bild am Sonntag.