German investor confidence increased more than economists expected in August as the recovery in Europe’s largest economy helped pull the euro area out of its longest-ever recession. The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, rose to 42 from 36.3 in July. That’s the highest level since March.

Growth in Germany may have exceeded economists’ forecasts in the second quarter, according to a government estimate, coaxing the 17-nation region out of a six-quarter slump. Paired with accelerating growth in the US and a pickup in Chinese exports and manufacturing, signs of a global economic recovery are increasing.

“Better-than-expected data from China and the US are reflected in investor confidence,” said Aline Schuiling, senior economist at ABN Amro Bank NV in Amsterdam. “The fundamentals of the German economy are healthy and that should help other European countries grow. But there’s still a risk that the debt crisis will flare up again.”

ZEW’s gauge of the current situation jumped to 18.3 from 10.6 in July, while an indicator of euro-area investor confidence increased to 44 from 32.8.

“First signs of an end to the recession in important euro- zone countries may have contributed to the indicator’s rise,” ZEW said in a statement. “This is also reflected by the strong increase of economic expectations for the euro zone. Furthermore, the economic optimism is supported by the robust domestic demand in Germany.”

Bloomberg