German business conditions improved for a second straight month in July to their strongest level since February, the Ifo institute said.
Ifo's business climate index, based on a monthly survey of around 7,000 firms, rose to 95.0 from 93.3 in June, the Munich-based economic think-tank said this morning. This took the index to a five month high.
The index result beat expectations and boosted hopes of a recovery in Europe's largest economy.
"An economic recovery has become more likely," said Ifo President Hans-Werner Sinn in a statement. "Especially the surveyed firms' expectations for the coming six months have significantly improved."
Mr Sinn said there was now less need for the European Central Bank to reduce interest rates, although he said a cut would help the European growth.
A breakdown of the component sections of the survey showed strong improvements in the manufacturing and wholesaling sectors. However, retail sentiment declined.