German business confidence improved to an eight-month high in March as defense and infrastructure spending plans offset concerns about US trade policies, survey data from the ifo Institute showed on Tuesday.

The business climate index hit 86.7 in March, up from 85.3 in the previous month. The score was seen at 86.8. The reading was the strongest since last July.

German businesses are hoping for a recovery, ifo Institute President Clemens Fuest said.

The survey showed that companies were more satisfied with current situation and their expectations improved noticeably.

The current situation index advanced more-than-expected to 85.7 in March from 85.0 a month ago. The score was forecast to climb to 85.5.

The expectations index rose to a nine-month high of 87.7 from 85.6 in the previous month. However, it was below the expected level of 87.9.

Capital Economics economist Franziska Palmas said the ifo survey and other surveys for March confirmed that the prospect of fiscal stimulus is boosting sentiment in Germany and outweighing concerns about US tariffs for now. However, the economist cautioned that sentiment could take a renewed downturn depending on how harshly Germany is hit by new US tariffs announced on April 1.

ING economist Carsten Brzeski said the German economy will soon experience a cyclical upswing.

"How long this upswing will last and whether it could become a structural recovery will now highly depend on whether or not the official coalition talks lead to real structural reforms," added Brzeski.

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