German business confidence has brightened more than expected this month with companies in Europe’s largest economy becoming markedly more upbeat on prospects for the next six months.

The Munich-based Ifo institute reported its closely-watched “business climate” index had risen for the third consecutive month, from 84.3 in May to 85.9 in June to the highest level since November.

In the past such a trend would have been interpreted as a clear sign that the economic outlook had turned decisively for the better. However the depth and severity of Germany’s economic crisis, and the fact that recent “hard” data such as for industrial production have barely improved, has left economists cautious about forecasting an early return to growth.

Moreover the latest rise in the Ifo index was entirely due to companies taking a more favourable view about the outlook for the next six months. Businesses’ assessment of current conditions deteriorated even further – dropping in June to the lowest since the survey began in 1991.

Underlying policymakers continuing caution, a European Central Bank policymaker indicated that official borrowing costs in the eurozone were likely to be held steady for the rest of this year. “If the economy is developing in the way that we expect, I do not see a perspective for this year and we will need to look again next year,” Ewald Nowotny, governor of Austria’s central bank, told Bloomberg in an interview. “The worse may be behind us, but there is still the need to be cautious with regard to future developments.”

Hans-Werner Sinn, Ifo’s president, argued the latest Ifo index reading pointed to a “gradual stabilisation of the German economy”. Manufacturers had reported that the downturn in exports was losing its intensity, he said, and while companies were still shedding jobs, the outlook for employment was not as pessimistic as in previous months.

Separately, Peter Löscher, Siemens’ chief executive and one of Germany’s top businessmen, cautioned that “the world economy is still in its sharpest crisis since 1929.” He conceded that the economic contraction seemed to have slowed down and that there was “justified hope” that the trough was in reach. “But we do not have any reliable indicators as to when the economic recovery will start,” the head of Europe’s largest engineering group said.

Siemens is pinning its hopes on the economic stimulus programmes worldwide, which Mr Löscher said could help to stabilise the engineering company’s business from 2010 onwards. Siemens said it aimed for €15bn in new orders from those government-sponsored economic boosts, which Mr Löscher said were worth €2,000bn around the globe.

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