German business confidence remained unexpectedly unchanged in May as booming exports and rising company spending boosted economic growth.

The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, held at 114.2 from April. Economists forecast a decline to 113.7, the median of 24 forecasts in a Bloomberg News survey showed.

A rebound in construction spending, surging company investment and rising exports powered Germany's fastest growth in almost a year in the first quarter, data today showed. Still, Europe's largest economy may struggle to maintain its momentum as euro-region governments toughen austerity measures to lower budget gaps while surging energy costs squeeze incomes.

"The sentiment is exuberant, we need a growth slowdown to avoid an overheating of the economy," said Andreas Scheuerle, an
economist at Dekabank in Frankfurt. "Business confidence will decline in coming months but this is far from being a catastrophe. Growth rates are normalising."

The euro rose after the report, trading at $1.4096 at 10.34am in Frankfurt, up from $1.4048 yesterday.

A gauge measuring the current assessment rose to 121.4 from 121 in April and a sub-indicator of expectations slipped to 107.4 from 107.7 in the previous month, Ifo said. The research institute this month reweighted its time lines and updated the base year used to calculate the index.

German gross domestic product rose 1.5 percent in the first quarter from the previous three months, the Federal Statistics Office said today. That's the fastest growth since the second quarter of 2010. Exports advanced 2.3 per cent and construction spending jumped 6.2 per cent.

"Growth is likely to ease somewhat in the foreseeable future," the Frankfurt-based Bundesbank said in its monthly report on May 20. "Output growth was clearly lifted during the reporting period by backloading and catching-up effects."

With euro-region governments from Spain to Ireland toughening spending cuts to lower their budget shortfalls, German companies have relied on faster-growing economies to bolster sales. The global economy may grow 4.4 per cent this year, with China expanding 9.6 per cent and India 8.2 per cent, the International Monetary Fund forecast last month.

Still, a 40 per cent increase in crude oil prices over the past year is adding pressure on companies to pass on higher costs to protect earnings and clouding growth prospects. German producer prices rose more than economists forecast in April, increasing 6.4 per cent from a year earlier, and consumer-price inflation quickened to 2.4 per cent in April.

German investor confidence declined more than economists forecast in May and manufacturing growth weakened.

Bloomberg