RTTNews - German business climate showed a better-than-expected improvement in July, indicating that the biggest Eurozone economy is on the road to recovery, results of a closely watched survey suggested Friday.

The Munich-based Ifo Institute for Economic Research said its business climate indicator for Germany rose to 87.3 in July from 85.9 in June. That was the fourth consecutive month of increase and topped expectations for a reading of 86.5.

An index measuring current business conditions stood at 84.3, up from 82.4 recorded in June and was the first increase in three months. Further, the expectations index rose for the seventh month to reach 90.4 in July from 89.5 in June.

The firms are no longer quite so dissatisfied with their current business situation as in the previous month. They are again less skeptical regarding business developments in the coming half year. It seems that the economy is gaining traction, Ifo said.

The recession in the Eurozone is obviously coming to an end, Commerzbank analyst Ralph Solveen said adding that the rise in the business climate points to an economic recovery in the second half of this year.

Business climate has improved in manufacturing and wholesale industries, while it was somewhat more favorable in the construction sector. Meanwhile, an increase in pessimism about future conditions dampened business climate in the retail sector.

Suggesting that a recovery is not far away for the recession-hit economy, recent data showed that factory output rose at its fastest pace in almost sixteen years in May. Pointing to further rise in factory output, new orders logged its biggest increase since June 2007.

Adding to existing signs for a revival, data released by Markit Economics showed Friday that a composite measure of manufacturing and services output rose to 48.9 in July from 44 in June.

In a separate report, Ifo said business climate in the German service sector improved in July. The indicator rose to minus 3 from minus 5. The current situation index jumped to minus 7 from minus 9. The skepticism with regard to the six-month business outlook has also weakened further, with the index climbing to 1 from minus 1.

If the economy recovers in the third quarter, it would ease the pressure on Chancellor Angela Merkel, who is facing election in September for a second term. The government predicts that the economy will contract 6% this year.

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