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The skyline of Frankfurt's financial district seen at sunset on April 22, 2020.

Kai Pfaffenbach/Reuters

German business morale posted its strongest rise in June since records began and Europe’s largest economy should return to growth in the third quarter after the coronavirus pandemic hammered output in the spring, the Ifo institute said.

Ifo said on Wednesday its June survey of companies showed the business climate index surging to 86.2, from an upwardly revised 79.7 in May - the largest jump since records started after reunification in 1990.

A Reuters poll of analysts had pointed to a reading of 85.0.

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“Companies’ assessments of their current situation were somewhat better. Moreover, their expectations leaped higher. German business sees light at the end of the tunnel,” Ifo President Clemens Fuest said.

Ifo economist Klaus Wohlrabe said the economy should return to a growth path in the third quarter after an expected double-digit contraction between April and June.

“We have passed the economic trough, the low point is behind us and things are looking up again,” Wohlrabe said. “Export expectations have risen significantly.”

A robust healthcare system and widespread testing has helped Germany record fewer fatalities linked to COVID-19 than many other European countries.

Even so, Europe’s largest economy is facing its worst recession since World War Two, with the government predicting in April that gross domestic product would shrink 6.3 per cent this year.

An Ifo current conditions index rose to 81.3 from 78.9, and an expectations index surged to 91.4 from an upwardly revised 80.5.

“At present, the principle of hope prevails: the economy is counting on massive support from monetary and fiscal policy and on the absence of a second wave of infection,” said DekaBank economist Andreas Scheuerle.

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The government hopes its more than 130 billion euro ($147 billion) stimulus package will help bring the economy back onto a growth path later this year.

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