Business confidence in Germany recovered more than expected in April from a historic low recorded in March, a closely watched survey revealed Friday, a sign that the pace of economic downturn will slow in the biggest Eurozone economy.

Friday, the Munich-based Ifo Institute for Economic Research said its business climate index rose to 83.7 in April from 82.2 in March. Meanwhile economists had expected a slight increase to 82.3. Business climate rose in sectors like manufacturing, retailing and wholesaling, but fell slightly in the construction sector.

The Ifo business climate index is based on 7,000 monthly survey responses of firms engaged in manufacturing, construction, wholesaling and retailing.

Manufacturers see their foreign business shrinking at a somewhat slower pace in April. Nevertheless, the firms plan to continue to reduce staff numbers. The utilization of available equipment and machines was considerably lower than that at the start of the year, the Ifo said.

The gauge for current business conditions rose to 83.6 from 82.7, in contrast to the forecast of a decrease to 82.1. In April, retailers and wholesalers assessed the current business situation more favorable than in March.

Further, the Ifo expectations index climbed for the fourth straight month to reach 83.9 from 81.6, while the forecast was for the reading to increase to 82.6. Firms engaged in manufacturing and wholesaling gave less optimistic assessment regarding the six-month outlook. The business expectations for retailers deteriorated further, while survey participants in the construction sector have given more reserved assessments.

The Ifo business climate index for the German service sector improved to minus 7 in April from minus 10 in March. The current situation index rose to minus 6 from minus 9 and the expectations index climbed to minus 8 from minus 11.

A day earlier, Ifo and other German economic think tanks jointly lowered their forecast for the biggest Eurozone economy. They now expect Germany to contract 6% in 2009, quicker than a 2.25% fall estimated previously. For 2010, the forecast group does not expect a dramatic recovery. GDP should decline 0.5%. Unemployment was forecast to rise to an average of 3.7 million this year and to 4.7 million next year.

Commmerzbank analyst Jörg Krämer said the GDP is set to have fallen by 3.5% in the first quarter on the final quarter of 2008, cementing the bank's forecast for a 6%-7% contraction for the full year.

On the basis of the recent improvement shown by the leading indicators, Kramer said, Our still cautious forecast compared to many economists had assumed that the economy will contract less sharply in the second and third quarter than in the first quarter.

The Center for European Economic Research, or ZEW, said on April 21 that its economic sentiment in the month turned positive for the first time since July 2007.

Latest set of forecasts from the International Monetary Fund showed that German economy would contract 5.6% in 2009 and 1% in 2010.

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