The Munich-based Ifo institute's headline business confidence index hit 111.0 points in December, an increase of 0.6 points over November's reading.
Analysts surveyed by financial data provider Factset had predicted the index would see a smaller rise of 0.2 points.
“The German economy is in a festive mood,” commented Ifo head Clemens Fuest, hailing a “strong finish to the year”.
A sub-index covering current business conditions rose by one full point to 116.6 — the highest level since February 2012 — while one covering the future outlook also brightened slightly.
The Ifo survey has painted a resilient picture of German businesses' mood over the course of the year.
Its lowest point came in February amid fears of a slowdown in China – a key customer for many German exporters.
By contrast, the dip after Britain's June vote to quit the EU – widely expected to bring economic pain for both the UK and the remaining 27 EU countries – was relatively contained.
And December's slightly improved result shows no negative impact from the election of Donald Trump to the White House in November.
President-elect Trump's protectionist rhetoric on the campaign trail prompted fears that exporters' US business could suffer.
“The German economy has continued its recovery and defied many external risks and turmoil” in 2016, ING Diba bank economist Carsten Brzeski commented.
High levels of employment, wage increases, low inflation and interest rates, and billions in government spending on refugees have all helped boost domestic consumption this year.
But there is unlikely to be much additional impulse from any of those quarters in 2017, Brzeski went on.
“The growth ingredients should remain the same but it will be a bit less of everything,” he said.