German business confidence unexpectedly rose from a 2 ½ year low in November, signalling growth in Europe's largest economy may rebound.

The Munich-based Ifo institute said its business climate index, based on a survey of 7,000 executives, climbed to 101.4 from 100 in October, the first gain in eight months.

French business confidence increased from the lowest in more than three years this month, a separate report showed today.

German growth slowed less than economists forecast in the third quarter even as the euro area, the country's largest trading partner, slipped into recession and the outlook for the global economy dimmed.

While companies are becoming more cautious and there are signs the economy could contract in the current quarter, the slowdown may prove to be temporary.

"That is truly surprising and a positive surprise but it certainly doesn't mean German companies now expect a boom," said Carsten Brzeski, an economist at ING Group in Brussels.

"It's more that they don't want to join the chorus of the doom- gloom-merchants, they know we're not over the worst, but that things will get better. Markets have calmed down and there are green shoots in the global economy."

Ifo's measure of executives' expectations rose to 95.2 from 93.2 in October, while a gauge of the current situation rose to 108.1 from a revised 107.2.

The euro rose as high as $1.2913 before retreating to $1.2906 at 9.45am in London.

German growth slowed to 0.2 per cent in the third quarter from 0.3 per cent in the second, the Federal Statistics Office confirmed today.

Exports, household spending and construction were the main contributors to growth, while inventories and company investment in plant and machinery subtracted from it, a detailed breakdown shows.

"The economy is currently influenced by a streaky overall picture that is likely to continue to darken by the end of the year," the Bundesbank said in its monthly report this week.

"The uncertainties stemming from the sovereign debt crisis are as much a concern as the mixed economic signals from other regions of the world."

The world economy will grow 3.3 per cent this year - the slowest since the 2009 recession - and 3.6 per cent next year, the International Monetary Fund said on October 9, cutting its forecasts from 3.5 per cent and 3.9 per cent respectively.

The Washington-based lender said it now sees an "alarmingly high" risk of a steeper slowdown, with a one-in-six chance of growth slipping below 2 per cent.

France, Germany's largest individual export destination, lost its top credit rating at Moody's Investors Service on November 19.

Moody's cited the country's uncertain fiscal outlook and its "deteriorating economic prospects."

Standard and Poor's, which stripped France of its top credit rating in January, said today there's at least a one-in-three chance it will be lowered again next year.

French business confidence climbed in November after President Francois Hollande unveiled a payroll tax cut for companies that will go into effect next year.

A gauge of sentiment among factory executives rose to 88 from 85 in October, national statistics office Insee said in Paris today.

Bloomberg