Recent economic data suggest that the German economy has started the new year with a reasonable amount of momentum, Capital Economics Chief European Economist Jonathan Loynes said.

The latest business confidence survey compiled by the Ifo Institute showed that the headline business climate indicator rose to a bigger-than-expected score of 110.6 in January, which was the strongest reading since July 2011. The index has been historically consistent with annual GDP growth of 3 percent.

According to the economist, much of January's increase has been driven by rising expectations, while the current assessment index has risen only slightly.

The sector-wise break-up of the survey showed that sentiment in the retail sector weakened for the second successive month, perhaps underlining the continued softness of activity in the consumer sector.

Capital Economics noted that the outcome of the Ifo survey is consistent with its expectations that the average German GDP growth will accelerate to about 1.5 percent in 2014 from 0.5 percent or so last year.

However, such growth will not be strong enough to have a very positive effect on the weaker Southern economies of the euro-zone and hence fully address the remaining imbalances inside the currency union, the economist added.

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