A container ship makes its way to dock in the harbour of Hamburg. The Ifo institute's German business confidence index climbed this month to its highest level since July 2011, putting Europe's top economy on track for a strong start to 2014. Photo: Reuters

Frankfurt - German business confidence has risen to the highest level in more than two years and beat economists’ forecasts in a signal that the expansion in Europe’s largest economy may be accelerating.

The Ifo institute’s business climate index, based on a survey of 7 000 executives, climbed to 110.6 this month from 109.5 last month.

Economists had predicted an increase to 110, according to the median of 45 estimates in a survey. It was the third consecutive rise and the strongest reading since July 2011.

Germany is key to sustaining the recovery in the rest of the 18-nation euro zone, its biggest trading partner, after the region’s longest-ever recession. The Bundesbank has predicted that the German economy would expand “strongly” in coming months after a weak start to the final quarter of last year.

“The traffic lights for a powerful economic recovery are green,” said Thomas Gitzel, the chief economist at VP Bank in Liechtenstein.

“Until now the German economy has relied on solid domestic demand. For the coming quarters there is now also a justifiable hope that global trade will pick up pace.”

A measure of current conditions rose to 112.4 this month from 111.6 the prior month, and a gauge of expectations jumped to 108.9 from 107.4, Ifo said.

The number of Germans unemployed dropped for the first time in five months last month and the jobless rate held at 6.9 percent, near a two-decade low.

Private consumption, imports and exports all rose last year, and German manufacturing probably expanded for a seventh month this month.

The nation still faces headwinds from the fragility of the recovery in the rest of the currency bloc.

German gross domestic product probably grew by about a quarter of a percent last quarter compared with 0.3 percent in the prior three months, the Federal Statistics Office said earlier this month.

Investor confidence unexpectedly declined this month from a seven-year high.

The European Central Bank kept its benchmark rate at a record low of 0.25 percent on January 9 after a surprise cut last November, and said the risks to the euro zone economy remained on the downside.

At the same time, consumer confidence in the region increased more than forecast this month, and European new vehicle sales rose last month by the most in almost four years.

Volkswagen’s global sales rose to more than 9.7 million vehicles last year.

“This is the confirmation of a process of a gradual acceleration” in Germany, Annalisa Piazza, a fixed income strategist at Newedge Group in London, said before the Ifo report.

“It’s based on the increased net contribution of exports, as well as on the growth of family spending on the back of the recent decline in unemployment and on an expansion of company investment.” – Bloomberg