Berlin - German business confidence rose to its highest level in nearly a year in September, a key survey released Thursday showed, adding to signs of recovery in Europe's biggest economy. In a major test of the economic mood in Europe, the closely watched Ifo business confidence index edged up to 91.3 points to post its sixth consecutive monthly rise after surging to 90.5 in August.
The business climate in Germany "has brightened further in September," said Ifo chief Hans-Werner Sinn. "However," he said, "by far, the greater number of firms still assesses the business situation as poor."
Based on a survey of 7,000 executives, the Munich-based Ifo economic research institute's index also represents the last major German economic indicator to be published before a national election on Sunday.
In addition, the release of the Ifo report coincides with the launch of the summit of the Group of 20 major economies in the US city of Pittsburgh, which is to review measures aimed at driving the global economy along a recovery path.
The Ifo index now stands at its highest level since October last year, when global economic confidence began to slide amid fears that the world economy was heading towards a dramatic downturn in the wake of the implosion of US investment bank Lehman Brothers.
"The increase in the Ifo indicator helps to back up our expectations of strong third-quarter economic growth," said Commerzbank economist Simon Junker.
But the increase in the Ifo index during September was less than forecasts, with analysts having predicted that the indicator would increase to 92 points.
This also points to growing expectations among both economists and business leaders that the German economy faced only a muted recovery after emerging from what has been its deepest recession in a generation during the second quarter.
More to the point, the winding back of the German government's 85- billion-euro (126-billion-dollar) anti-crisis fiscal stimulus plan next year, along with concerns about a buildup in global public debt, could undercut the upswing and result in a rise in the numbers out of work.
"Next year, when all exogenous stimulus is gone, the economy could easily be left with its export sector as the sole growth driver," said ING Bank economist Carsten Brzeski.
"Even with a rather positive growth outlook, it will take as long as until 2012 before the economy has digested the crisis, returning to its size of early 2008," Brzeski said.
After contracting by 4.5 per cent this year, the Cologne-based economic institute IW predicted this week the German economy will grow by a modest 1.5 per cent in 2010.
A survey of German investor confidence released last week rose to its highest level in about three years with the improvement in the nation's economic sentiment, helping to bolster Chancellor Angela Merkel's chances of re-election at Sunday's ballot.
The Ifo report also comes amid signs of rising confidence in Europe's boardrooms.
A survey released on Tuesday by France's statistical office INSEE showed business sentiment in the 16-member eurozone's second biggest economy rose to 85 in September from 79 in August. Economists were expecting the index to rise to 81.
Business confidence also rose in Belgium, which is considered by economists to reflect the economic sentiment prevailing across the eurozone.
However, signs of uncertainty in Belgium's key industrial sectors meant the increase in business confidence in the nation was not as strong as in the five previous months.
Helping to drive the Ifo index higher in September was an improvement in German industry leaders' view of business conditions - both at present and six months down the track.
While the Ifo index component measuring business expectations edged up from 95 in August to 95.7 in September, the gauge measuring current conditions rose to 87 from 86.2.
