German business confidence returned to pre—crisis levels in June, as a survey released on Wednesday showed an unexpected rise in boardroom optimism, which had dipped the previous month.

The Munich—based Ifo institute’s closely—watched business climate index rose to 101.8 points, a level last reached before the global financial crisis, in May 2008.

The 0.3—point increase on the May figures came after economists had predicted that business confidence would drop further.

Future projections were less optimistic, although Ifo President Hans—Werner Sinn stressed that “most corporations remain confident that economic recovery will continue.” Forward—looking business confidence dipped from 103.7 to 102.4 points in June, but Ifo’s economics expert Klaus Abberger said this merely reflected the expectation that this year’s strong growth would level off at some point.

“The German economy made a large leap forward during the first half of the year,” Mr. Abberger said.

The Ifo economist also warned that federal budget cut plans could dampen growth, but said there was a need for the measures, aimed at reducing state expenditure by up to 80 billion euros (100 billion dollars) in 4 years.

“(The cuts) are important to make growth as a whole sustainable.

If politics sat still, the economy could also suffer,” Mr. Abberger said.

Industrial producers also judged their current position favourably, but feared that exports would not continue to rise at the current rate.

The business climate fell slightly in the retail sector where gloomy projections overshadowed current levels of satisfaction, according to the Munich—based monthly survey of around 7,000 companies.