Germany's Angela Merkel is looking to reform the economy

Research group GfK said that it expects its confidence index to hit 7.3 points in June, up from 5.7 points in May.

Many analysts were expecting consumers to be less optimistic because of higher sales taxes, and interest rate rises.

However, it seems that consumers have shaken off their worries, boding well for growth in Europe's largest economy.

GfK said that any weakness caused by an increase in value added tax was at an end.

"Consequently, consumers will again be more inclined to loosen their purse strings and make larger purchases," the research group said.

'Euphoric outlook'

The survey assessed 2,000 consumers on their outlook, income expectations and propensity to buy.

Nuremburg-based GfK noted that one of the main factors in growing confidence was that engineering workers were enjoying wage rises of 4.1%.

"A euphoric outlook in confidence is due to positive corporate sentiment, an apparent improvement in the labour market and rising wages," GfK said.

The rise in consumer confidence comes against a backdrop of economic reform.

As well as pushing through corporate tax cuts, Chancellor Angela Merkel's ruling coalition is also looking at ways of reforming labour laws to make the jobs market more flexible, and rein in government spending.

The cut in company tax from 39% to 30% will come into effect in 2008 if the move is ratified by Germany's upper house of parliament.