By Christian Vits June 22 (Bloomberg) -- German business confidence unexpectedly rose to a two-year high in June as the euro’s depreciation and a global economic recovery brightened the outlook for exports. The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, increased to 101.8 from 101.5 in May. That’s the highest since May 2008. Economists expected a decline to 101.2, according to the median of 38 forecasts in a Bloomberg News survey. Governments across the 16-nation euro region are cutting spending after Greece’s near default sparked investor concern that budget deficits are spiraling out of control. While tighter fiscal policy may damp economic growth, the crisis has also pushed the euro down 13 percent against the dollar this year, boosting German exports outside the currency bloc. “With its export strength, Germany is very well-positioned to profit from the recovery in Asia and increasingly in the U.S.,” said David Milleker, chief economist at Union Investment in Frankfurt. Ifo’s measure of executives’ expectations declined to 102.4 from 103.7, while its gauge of the current situation increased to 101.1 from 99.4. Raised Forecasts The Bundesbank on June 11 raised its growth forecasts for Europe’s largest economy even as the government agreed to reduce spending by 80 billion euros ($99 billion) over the next four years. The German central bank predicted expansion of 1.9 percent this year and 1.4 percent in 2011, up from 1.6 percent and 1.2 percent respectively. Volkswagen AG, Europe’s largest carmaker, said last week operating profit and deliveries may rise “significantly” this year as demand increases in major markets and the euro’s decline against the dollar helps sales abroad. Germany’s benchmark DAX share index has rallied 11 percent in the past month and is up almost 6 percent this year. Still, German investor confidence plunged this month on concern that the sovereign debt crisis will undermine demand for the country’s good within the euro area, its biggest export market. “The Europe-wide consolidation efforts have certainly damped companies’ outlook,” said Joerg Lueschow, an economist at WestLB AG in Dusseldorf. “Economic growth will weaken around year-end after very strong second and third quarters.” To contact the reporter on this story: Christian Vits in Frankfurt at cvits@bloomberg.net

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