German business confidence rises for third month and beats forecasts

German business sentiment rose for a third consecutive month in July as companies became more optimistic about the economic outlook despite the Middle East war, the Ifo institute said.

Ifo’s closely watched business confidence index increased to 86.6 points from 85.7 in June. Analysts surveyed by FactSet had expected the indicator to remain unchanged.

The institute said the rise was driven by “a significant improvement in expectations” and reduced pessimism about uncertainty in the Middle East.

Manufacturing recorded a particularly strong improvement, with its outlook index rising to minus 9.6 points from minus 12.5. Ifo said demand had strengthened and shortages of materials had eased.

Sentiment also improved in services, trade and construction.

Companies remained less positive about their current business conditions, particularly in industry and services.

Philipp Scheuermeyer of KfW bank noted that some companies completed the survey while a ceasefire between the United States and Iran was still in effect.

Germany’s expected economic recovery remains vulnerable to the Middle East war, possible disruption in the Strait of Hormuz and volatile energy prices.

Germany’s statistics office Destatis is due to publish its initial estimate of second-quarter economic growth on Thursday.

Analysts surveyed by FactSet expect gross domestic product to have increased by 0.1 percent, following growth of 0.3 percent in the first quarter.