German business confidence improved for the first time in four months in a sign that domestic demand is helping shield companies in Europe’s largest economy from slowing global growth. The Munich-based Ifo institute’s business climate index rose to 106.7 in March from 105.7 the previous month. The median estimate in a Bloomberg survey of economists was for an increase to 106.

German companies have increased their reliance on domestic demand as a China-led slowdown in emerging markets curbs exports. A measure of German investor optimism to be published later on Tuesday is also forecast to show a pickup. The improvement "is related to catching-up effects after the exceptionally strong decline in February" for both indicators, Johannes Gareis, an economist at Natixis SA in Frankfurt, said before the reports. Business confidence "still faces headwinds from weakness in the manufacturing sector on the back of weak global growth and the euro exchange rate."

The single currency has risen 2.5 per cent on a trade- weighted basis this year. Germany’s Bundesbank warned on Monday that the nation’s growth momentum could slow in the second quarter after a positive start to the year as weakening exports prompt companies to curb output and hiring. A boost may come from ECB stimulus as the institution deploys negative interest rates, more bond purchases and a potential subsidy to lenders in a renewed bid to bolster the euro-area economy and quash the threat of deflation.

The ZEW gauge of German investor confidence will be published at 11 a.m. in Mannheim. The measure will probably climb to 5.4 in March for the first increase in three months, according to a separate Bloomberg survey. It dropped to 1 in February, the weakest reading in more than a year.

Bloomberg