BERLIN (AP) -- Germany's business confidence rose in August to its highest level in three years, according to a key survey Wednesday, suggesting Europe's biggest economy continues to grow as companies plan to hire more and manufacturers and retailers enjoy improved demand.
The Ifo research institute, based in Munich, said its business confidence index rose to 106.7 points from 106.2 points in July, beating market expectations of a slight decline.
"The German economy remains robust," Ifo President Hans-Werner Sinn said in a statement.
Although the closely watched survey marked its sixth consecutive increase, it showed business expectations down slightly from 105.6 to 105.2, Ifo said.
The survey showed a more favorable business climate in the manufacturing industry than in July and said companies intend to hire more people, despite an anticipated drop in the recent export boom.
Confidence remains strong despite worries in markets about growth prospects in the U.S., a key export market. Companies are still very confident regarding their six-month outlook, though somewhat less so than in the previous month, it said.
"The summer party among German companies continued unabated in August," UniCredit analyst Alexander Koch wrote in a research note.
He noted that strength in manufacturing sentiment is also increasingly based on renewed domestic investment activity, not only a comfortable order backlog from abroad.
The overall business confidence index last stood higher before the financial and economic crisis in June 2007 at 106.8.
In the retailing industry, the business climate has also brightened further, bolstered by low unemployment, whereas the outlook is somewhat less optimistic in the construction sector, it said.
The export-driven German economy contracted by 4.7 percent last year, easily its worst performance since World War II, but economists are forecasting gross domestic product to grow by two to three percent in 2010. Economy Minister Rainer Bruederle has said growth of "well over 2 percent" is possible.
In July, the Ifo index posted its biggest increase since the country's reunification in 1990, jumping to 106.2 points from 101.9 points.
"The improved outlook for the domestic economy has been putting the recovery on a broader footing, definitely adding to the sustainability of the current upswing," Koch said.
Rolf Schneider, an economist with insurer Allianz, also noted the increasing role played by domestic demand.
"The combination of the improving labor market and a strengthening domestic demand is a key element of a self-sustaining upsurge," he said.
Germany's unemployment rate has declined over the past months. In seasonally adjusted terms, the jobless rate slipped to 7.6 percent in July from 7.7 percent in June, and a total of 3.192 million people were registered as unemployed.
Koch noted, however, that Germany's export-driven economy will not be able to uncouple itself from the global trend, including a sluggish U.S. economy, a cooling down in Asia and very modest growth in its European neighborhood.
The Ifo business climate index is based on about 7,000 monthly survey responses of German companies in the sectors of manufacturing, construction, wholesaling and retailing.