German business sentiment rises more than expected in July, Ifo survey shows

By Maria Martinez

BERLIN, July 27 (Reuters) - German business morale grew more than expected in July as the outlook for companies improved across sectors, a survey showed on Monday, although they continue to face risks from the impact of the Iran war.

The Ifo institute said its business climate index rose to 86.6, its highest level since February and the third consecutive monthly increase. It rose from a slightly upwardly revised 85.7 in June.

Analysts polled by Reuters had forecast an increase to 86.0.

"Despite the uncertain situation in the Persian Gulf, the German economy is showing less pessimism," Ifo President Clemens Fuest said.

"Even if the third consecutive increase in the Ifo index is not yet a reason to prepare for the next growth party in Germany, it at least shows a certain resilience of the economy," said Carsten Brzeski, global head of macro at ING.

CURRENT SITUATION LESS GOOD

Economic expectations rose to 86.7 in July from 84.3 in June, posting a six-month high.

This reflected the government's recent reform package, its continued commitment to infrastructure-related fiscal stimulus, and hopes that the worst of the U.S.-Iran war is over, said Claus Vistesen, chief euro zone economist at Pantheon Macroeconomics.

However, companies were slightly less satisfied with their current business performance, with the index falling to 86.5 in July from 87.0 in the previous month.

"Today’s Ifo index reading probably reflects more the initial relief after the U.S.-Iran Memorandum of Understanding than the recent surge in energy prices," said Brzeski.

The recent escalation in the conflict in the Gulf and the associated renewed rise in oil and gas prices are likely to have weighed on the current situation index and remain a risk for the coming months, said Marc Schattenberg, research economist at Deutsche Bank.

Business sentiment improved across all economic sectors, the survey showed.

(Reporting by Miranda Murray, Editing by Linda Pasquini and Susan Fenton)