German business confidence unexpectedly increased for a fourth month in August to a 3-year high, suggesting the economy may not lose as much momentum as some economists forecast after expanding at a record pace in the second quarter.

The Ifo institute at the University of Munich said its business climate index, based on a survey of 7,000 executives, rose to 106.7 from 106.2 in July to the highest level since June 2007.

Ifo said in manufacturing the business climate is again more favourable than in the previous month. The manufacturing firms have reported a better business situation than in July. With regard to the six-month business outlook they are still very confident, though somewhat less so than in the previous month. The stimulus from exports is no longer expected to be as strong as was the case in the previous months. Nevertheless, there are somewhat more frequent plans to increase staff levels.

In retailing and the business climate has brightened further. The surveyed retailers report a better business situation than in July. They are also more optimistic with regard to the business outlook for the coming six months. In contrast, the business situation in wholesaling worsened slightly. Survey participants have reported a somewhat less favourable business situation in comparison to the previous month. The six-month business outlook is also not regarded quite so positively.

The business climate in construction has clouded over to some extent. The firms no longer see their current business situation quite as favourably as in July, and they are also slightly less confident regarding business developments over the coming six months.