Recent strikes may threaten future growth

There was a glimmer of hope for the stagnated German economy after firms said they expected business to pick-up during the next six months.

The Ifo business index, based on the expectations of 7,000 firms, surprised analysts by rising for the third month in a row.

"The business climate index improved in all areas, especially in the retail sector," Ifo President Hans-Werner Sinn said.

Despite the improvement, the Ifo Institute is still predicting that the eurozone's largest economy will stay stuck in the doldrums this year, recording zero growth.

And analysts were also worried about the impact of this month's three-week strike that has halted production at key car factories in eastern Germany.

Domestic strength

"I'm sceptical about the business conditions findings because we had strikes in June which affected the auto industry," said Joerg Kraemer at Invesco Asset Management.

"I wouldn't read (the index) as a sign of an upturn, rather of stagnation," he added.

The Ifo said that the rise was due to strengthening domestic demand rather than any help coming from the world economy.

While a number of European business surveys have recently revealed rising confidence, the European Central Bank is still expected to cut interest rates further to spur growth.