Germany's key Ifo business climate index improved for the third straight month in July to its highest level in a year to fan cautious optimism that Europe's largest economy is on the verge of a recovery.
The Ifo rose to 89.2 in July from 88.8 in June, although the index, based on a monthly survey of 7,000 firms, fell short of economists' forecasts for a reading of 89.7.
"Based on previous experience, an improvement in the Ifo business climate three months in succession signals a coming economic upturn," Ifo President Hans-Werner Sinn said in a statement, adding that the business climate improved in all sectors except construction.
Economists said the index suggested a turning point in the business cycle, but urged caution because it resulted purely from hopes rather than any actual improvement in fundamentals. Those hopes have been fuelled by planned tax cuts and economic reforms.
The current conditions component of the index fell to 78.7 from 79.4, while the expectations component rose to 100.2 from 98.6. The climate index is made up of those two components.