* Ifo sentiment index up for second month
* Auto industry drove expectations for export
* Firms more downbeat about current conditions
* Risks from Japan, China, Europe, U.S. Fed, say economists
By Michelle Martin
BERLIN, June 24 German business morale edged up
in June as exporters anticipated an upturn in fortunes, raising
hopes that Europe's largest economy is putting recent weakness
behind it - though a fragile global backdrop suggested the mood
The Munich-based Ifo think-tank said on Monday its business
climate index, based on a monthly survey of some 7,000 firms,
climbed for a second month running to 105.9 from 105.7 in May,
in line with the consensus forecast in a Reuters poll.
Exporters, traditionally the drivers of German economic
growth, were significantly more upbeat than in May, Ifo said,
while heavy flooding in the south and east of the country failed
to dent the mood among domestically-focussed firms.
"German industry is pinning strong hopes on exports," Ifo
economist Klaus Wohlrabe told Reuters, adding that he expected
the economy to grow significantly more in the second quarter
than in the first three months of 2013.
The German economy propped up growth in the euro zone during
the early years of the debt crisis, but slowed last year as
exports and investment weakened and only just avoided recession
in early 2013 thanks to household spending.
Earlier in the year Cyprus's messy bailout situation and an
Italian election which left no political force with enough seats
to form a majority had depressed business sentiment in Germany.
"With tensions in the euro zone fading again after the early
spring wobbles around Italy and Cyprus, Germany's economy looks
set to continue its healthy rebound," said Christian Schulz,
senior economist at Berenberg Bank.
RANGE OF RISKS
But others offered fewer grounds for optimism, emphasising a
range of risks including tougher competition from Japan, a
sickly euro zone economy, a growth slowdown in China and less
central bank monetary stimulus.
"The main risks for the German economy remain stagnating
growth in its main euro zone trading partners, above all France,
and a hard landing of the Chinese economy," Carsten Brzeski,
senior economist at ING said.
Business confidence in Germany could also take a knock after
Europe failed at the weekend to agree on how to share the cost
of bank rescues and Greece's ruling coalition lost its smallest
party, potentially making it harder to pass the reforms the
country needs to implement to qualify for more bailout payments.
In another positive sign, Ifo's Wohlrabe said Germany's big
auto industry was the main force behind the improvement in
export expectations, even though European car sales plunged last
month to their lowest May level in two decades.
With many European economies in or near recession, German
exporters have relied on China as a strong alternative market,
but growth rates are weakening there too.
German manufacturing, which accounts for around a fifth of
the economy, fared well in the survey. Factories felt a little
happier with their current business situation - welcome news
after a survey last week showed industry contracting in June.
Companies were more pessimistic about current business, the
Ifo survey showed. That tallies with recent downbeat
announcements from big firms like Commerzbank, which
plans to cut about 12 percent of its full-time staff.
But firms were more upbeat about their business outlook,
with that sub-index rising to 102.5 from 101.6 in May.
"That points to a better third quarter than expected so far.
It's a positive signal that the upswing could gather speed,"
said Christoph Weil, economist at Commerzbank.
Recent data has painted a mixed picture, however, with
foreign trade, output and investor sentiment improving but
industrial orders dwindling and unemployment edging up.
The government expects growth to pick up in the second
quarter but sees foreign trade dragging on growth this year,
while Germany's central bank said there were signs the growth
rate would slow over the summer.
While Chancellor Angela Merkel and her opposition challenger
Peer Steinbrueck have not made the economy a major campaign
issue ahead of a national vote in September, any significant
weakening would make it harder for Merkel to win a third term.
The German economy nonetheless remains robust compared to
many of its recession-mired peers like Spain.