German business morale rises to its highest level in 15 months

German business morale improved unexpectedly in August to its highest level in 15 months, a survey showed on Monday, although analysts warned the economic outlook remained weak.

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The Ifo institute said its business climate index increased to 89.0 in August from 88.6 in July, the highest since May of last year. Analysts polled by Reuters had forecast a reading of 88.6.

"The improvement is not enough to create real hopes for growth," said Alexander Krueger, chief economist at Hauck Aufhaeuser Lampe. "Much is based on expectations for the future, the fulfilment of which is uncertain."

The increase was due to improved expectations among companies. However, the current situation was assessed as slightly worse, Ifo said.

"The recovery of the German economy remains weak," Ifo president Clemens Fuest said.

Germany's economy shrank by 0.3 per cent in the second quarter, further dimming expectations of a sustained recovery by Europe's biggest economy this year.

Klaus Wohlrabe, head of surveys at Ifo, expects meagre growth in the third quarter, with gross domestic product expanding by only 0.1 per cent.

He added that export expectations had worsened since the EU and the US struck a framework trade deal in late July with a baseline tariff of 15 per cent.

Higher US tariffs were dampening growth, while the European Central Bank’s interest rate cuts and the billions in infrastructure spending promised by the German government were likely to drive a moderate recovery, said Thomas Gitzel, chief economist at VP Bank.