German business sentiment rises more than expected in April, Ifo finds

A general view shows the city center of Frankfurt

By Miranda Murray and Maria Martinez

BERLIN (Reuters) -German business morale improved more than expected in April, a survey showed on Wednesday, boosting hopes that the worst may be over for Europe's biggest economy although any recovery is not expected to be strong.

The Ifo institute said its business climate index rose to 89.4 compared with a reading of 88.8 forecast by analysts in a Reuters poll. In March, the reading was revised slightly to 87.9.

"The third rise in a row and the second strong increase in a row. That looks like a trend reversal," said LBBW senior economist Jens-Oliver Niklasch.

"You have to remain cautious in difficult times, but at least there is now some evidence to suggest that we saw the bottom of the economy in winter," he added.

Earlier this week, the flash HCOB purchasing managers' index (PMI) showed a services-led boost in business activity, with the April reading rising well above forecast to its highest in 10 months.

The rise in the German Ifo index in April, together with the jump in the composite PMI in the same month, suggests that the German economy may be past the worst, said Franziska Palmas, senior Europe economist at Capital Economics.

But, unlike the PMI, the Ifo index remained in contractionary territory, Palmas noted.

The Ifo survey showed overall morale was boosted by companies reporting that they were more satisfied with their current business situation, while future expectations also brightened significantly.

Both these indexes beat forecasts, with expectations rising to 89.9, versus a predicted 88.7, and assessment of the current situation climbing to 88.9, slightly above an expected 88.7.

"The economy is stabilizing, especially thanks to service providers," said Ifo president Clemens Fuest.

The German government will nudge up its growth forecast for this year to 0.3%, from 0.2% previously, at a news conference later on Wednesday, a source told Reuters last week.

Germany is broadly expected to enter another technical recession in the first quarter of this year, after its economy shrank by 0.3% in the final quarter of last year.

Europe's biggest economy was the weakest among its large euro zone peers last year, as high energy costs, feeble global orders and record-high interest rates took their toll.

The third consecutive rise in the Ifo index provides further evidence of a bottoming out of the German economy, ING's global head of sector research Jeroen van den Broek said, adding that three consecutive increases tend to mark a turning point in the economy.

"The cyclical trough is behind us but this doesn’t necessarily mean that a strong recovery is imminent," he said.

(Reporting by Miranda Murray and Maria Martinez; Editing by Rachel More and Christina Fincher)