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German business confidence up more than expected

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DAVID McHUGH | December 19, 2012 05:12 AM EST | AP

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FRANKFURT, Germany — A key measure of German business optimism rose slightly more than expected in December, suggesting Europe's largest economy will avoid a recession despite a recent slowdown in growth.

The Ifo institute said Wednesday that its main index rose to 102.4 from 101.4 the month before. The consensus expectation among market analysts was 102.0

The survey is a leading indicator, suggesting where the economy may be going in the months ahead. It's based on a poll of 7,000 business executives about how they see things now and six months from now.

Their views about current conditions darkened, suggesting that the fourth quarter may see the economy shrink slightly. But that was outweighed by brighter expectations for the future, suggesting that an outright recession, defined as two straight quarters of falling output, is unlikely.

The German economy grew only a modest 0.2 percent in the third quarter from the previous three-month period, down from 0.3 percent the quarter before.

Many economists think it will skirt with recession before growth improves next year.

Economist Alexander Koch at UniCredit is predicting a 0.2 percent quarterly contraction in the fourth quarter, but noted that the Ifo results "signal the end of contraction" and that growth would strengthen next year.

Christian Schulz, senior economist at Berenberg Bank, said the brighter outlook would help growth as companies spend to expand production in anticipation of more business.

"The confidence rebound should continue, gradually feeding through to GDP growth as companies start investing again," Schulz said.