*

German business morale improves, economic outlook still

weak

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Ifo business climate index rises to 88.6 in July

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Fiscal stimulus seen boosting economy

(Rewrites paragraph 1, economists comments and context in 3-8

and 12-15)

By Maria Martinez

BERLIN, July 25 (Reuters) - German business morale

improved in July to its highest level in 13 months, a survey

showed on Friday, although analysts warned the economic outlook

remained weak.

The Ifo institute said its business climate index rose to

88.6 in July, the highest since June last year, from 88.4 the

month before. Analysts polled by Reuters had forecast a rise to

89.0.

"German business sentiment is still riding the wave of

optimism," said Carsten Brzeski, global head of macro at ING,

adding that the seventh consecutive increase in Germany's most

prominent leading indicator was remarkable.

Nevertheless, Brzeski said it was unclear whether the

optimism was based on stronger economic fundamentals or just

wishful thinking.

German businesses seem to be focusing on the bright side of

what could happen under a new government, rather than ongoing

economic uncertainty and trade tensions, he added.

Germany's parliament approved in March plans for a massive

spending surge, with a 500-billion euro ($587 billion) special

fund for infrastructure and plans to largely remove defence

investment from the rules that cap borrowing.

Leading German companies including Siemens and

Deutsche Bank also announced a major investment

initiative on Monday aimed at reviving investor confidence in

Europe's largest economy.

"This fiscal stimulus will inevitably boost the economy,

even though the long-term growth outlook remains extremely

subdued," said Joerg Kraemer, chief economist at Commerzbank.

ANAEMIC ECONOMY

"The upturn in the German economy remains anaemic," Ifo

president Clemens Fuest said.

While the current conditions index rose to 86.5 from 86.2 in

the previous month, the business expectations index was

virtually unchanged.

"Uncertainty remains high, which is weighing on the

economy," Klaus Wohlrabe, head of surveys at Ifo, told Reuters.

Wohlrabe forecasts the German economy stagnated in the

second quarter and it will start growing modestly in the second

half of the year.

"But there is a lack of momentum and dynamism," he said.

The economy grew by 0.4% in the first quarter of 2025 from

the previous quarter. Preliminary results for the second quarter

will be published on Wednesday.

($1 = 0.8512 euros)