German business confidence rebounded this month in an unexpectedly strong showing that sends a hopeful signal for more robust growth in Europe's biggest economy, a closely watched survey found Friday.
The Ifo think tank's confidence index rose to 105.7 points for May from 104.4 last month. The upturn followed two consecutive declines and beat economists' expectations of a very slight increase to 104.5.
The German economy returned to modest growth of just 0.1 percent in the first quarter, just enough to avoid a recession after shrinking in the last three months of 2012.
That performance was weighed down by an exceptionally long winter and the country's central bank said this week that it expects an improvement in the current quarter. Recent industrial orders data also have been promising.
Ifo said this month's improvement in its survey was fueled by companies' brighter view of their current situation, while their outlook for the next six months remained unchanged.
Export expectations have weakened somewhat among companies in the key manufacturing sector, but "continued stimulus from abroad is expected," Ifo said in a statement.
A separate survey showed a significant rise in German consumer confidence as people's expectations for the economy and for their own income improved.
The GfK institute said its forward-looking consumer climate index rose to 6.5 points for June from 6.2 in May, the highest since September 2007, though it cautioned consumer confidence would be vulnerable if Europe's debt crisis escalates again.
With German unemployment low and employees in some sectors recently winning significant pay rises, domestic demand is helping keep the economy on track even as other countries in Europe struggle.
Germany's Federal Statistical Office pointed to household spending, which rose 0.8 percent in the first quarter, as a key driver in the country's return to growth. Detailing the first-quarter performance on Friday, it said exports barely contributed to growth, while investment decreased.
Carsten Brzeski, an economist at ING in Brussels, said "the fog is clearing" over the direction of the German economy, and that a combination of private consumption and a catch-up in industrial activity, particularly in construction, "could deliver decent growth in the second quarter."
However, he cautioned that "the big unknown in the equation remains the export sector," pointing to softer growth in China and economic stagnation in neighboring France.
The Ifo survey is based on monthly responses from some 7,000 companies.
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