German business confidence hits record high in July

German business confidence unexpectedly improved in July, according to a widely-followed survey.

The Ifo's business climate index rose to 116 from 115.2 the month before, beating expectations for a reading of 114.9 and hitting a new record high for the third month in a row.

The current assessment index printed at 125.4 from 124.2 in June, surpassing expectations for a drop to 123.8.

Meanwhile, the expectations index advanced to 107.3 in July from 106.8, coming in ahead of forecasts of 106.5.

Clemens Fuest, president of the Ifo Institute, said: "Companies’ satisfaction with their current business situation reached its highest level since Germany’s reunification. Their short-term business outlook also improved. Germany’s economy is powering ahead."

Jennifer McKeown, chief European economist at Capital Economics, said: "July’s rise in German Ifo business sentiment suggests that the economy has been encouragingly resilient to a stronger euro and hints of QE tapering so far."

She said the increase in the headline business climate indicator was particularly surprising after data on Monday revealed a dip in the composite PMI.

"The Ifo index is now at a new record high and, on past form, it appears consistent with a sharp rise in annual GDP growth to 4% or more, from Q1’s rate of 1.7%. Both the expectations and current conditions indices increased.

"There are good reasons not to take this at face value. The Ifo has been too optimistic for a few months now, pointing to a pick-up in GDP growth which hasn’t materialised. And while the PMI is not a perfect indicator either, it points to a slight slowdown in the quarterly pace of growth from Q1’s 0.6%. On balance, we believe the message from the hard data that Q2 will be very strong, but we suspect that growth will slow a bit thereafter."