The Munich-based Ifo economic institute's business climate index rose to 94.7 from 93.9 in November. That's the highest since July 2008 and exceeded a forecast of 94.5 by local media.
"The optimistic and the sceptical outlook assessments nearly balance out. After the dramatic economic collapse last winter, these survey results should bring some Christmas cheer," said Ifo.
The economic research institute raised its expectation for the German economy on Tuesday, on the basis of rising exports and incoming tax cuts. It echoed the better expectations of other institutes this month.
The Essen-based RWI institute raised its 2010 growth forecast for Germany to 1.6 percent on Dec. 10, matching a Dec. 4 Bundesbank prediction.
By contrast, a key indicator released by the ZEW Center for European Economic Research on Tuesday showed German investor confidence declined by 0.7 points in December.
The Ifo Business Climate Index is based on 7,000 monthly survey responses from firms in manufacturing, construction, wholesaling and retailing.