UPDATE 2-German business morale hits 3-yr high

* Ifo climate index surprises, highest since June 2007

* Ifo current conditions index rises, expectations fall

* Euro rises to session high after data

* Ifo economist: Germany healthy, not immune to dips abroad

(Adds details, background)

By Annika Breidthardt

BERLIN, Aug 25 (Reuters) - German business morale rose to its highest in more than three years in August, an unexpected gain that boosted confidence Europe’s largest economy will keep growing even if others slip back into recession.

The Munich-based Ifo think tank said on Wednesday its business climate index rose to 106.7 from 106.2 in July, the third rise in a row and beating the mid-range forecast in a Reuters poll of 42 economists for a fall to 105.7. ECONDE

“It’s incredible but it’s also wonderful the way things are going at the moment. It’s hard to imagine it going beyond this,” Andreas Scheuerle of Deka Bank said.

“The air is getting thin for any further increases in the business climate index.”

The data, a fresh illustration of the extent to which the euro zone relies on Germany as its engine of growth, drove the single currency to a session high against the dollar, while German Bund futures extended losses. [ID:nLDE67O0EZ]


For a graphic showing German IFO and PMI, double-click on



An Ifo index on current conditions rose to 108.2 from 106.8 in July but another on expectations fell to 105.2 from 105.6, in a further sign that growth would likely slow somewhat.

Ifo economist Klaus Abberger joined the ranks of those saying growth would not continue as strongly in the second half, saying Germany’s economy was in healthy shape but not immune if the United States were to slip back into recession or Asian growth were to slow. [ID:nLDE67O0MN]

“There is a growing confidence in the upturn and that’s having a positive effect on consumption,” he told Reuters. “The risks are from abroad.”

Surging exports and a return to higher levels of consumer spending powered the German economy to growth of 2.2 percent in the second quarter this year, the highest rate in 20 years and generating a broad-based recovery.

Abberger said the German economy could post growth of 3 percent this year, in line with a forecast from the Bundesbank last week. He expected domestic consumption to grow slightly over the full year. [ID:nLDE67I1CW]

France and some other euro zone countries had criticised Germany for relying too much on exports and not doing enough to stimulate domestic demand, from which its peers could benefit.

In contrast to Germany, France grew by just 0.6 percent in the second quarter and the French government last week cut its 2011 growth forecast to 2 percent. The euro zone as a whole grew 1 percent while the Greek economy contracted sharply.

In the United States, the risks of a double-dip recession have risen in the last six months, Chicago Federal Reserve Bank President Charles Evans said on Tuesday.

Germany’s leading businesses are a good mirror for the country’s economic strength. Of the 30 companies in the bluechip DAX index, 23 beat market expectations with their earnings in the quarter to end-June and 12 hiked their outlooks.

Bellwether Siemens SIEGn.DE broke a streak of nearly two years of declining sales and raised its outlook in July, helped by rising emerging market demand and a weak euro. [ID:nLDE66R21N]

German flagship carrier Lufthansa LHAG.DE said on Wednesday its business had developed strongly in recent months. [ID:nLDE67O0K2]

Companies are also hiring again. Unemployment fell to 7.6 percent in July.

The Ifo results are based on a monthly survey of some 7,000 firms.

(Additional reporting by Christian Kraemer in Munich and Paul Carrel, Erik Kirschbaum and Brian Rohan in Berlin)