Germany's business climate improved for the third consecutive month in July after Europe's second largest economy had a sluggish start to the year.

According to the Munich-based Ifo think tank's Index, business climate of Germany's economy has grown from 105.9 in June to 106.2 this month.

The monthly survey is conducted by taking responses of 7,000 firms in manufacturing, construction, wholesaling and retailing.

"The economy is starting to build a better head of steam, thanks to the export sector and the fact that consumers seem to be gaining better confidence," said David Brown, an economist at New View Economics.

"If the improvements continue at this rate Germany could see growth upwards of 1% this year and 2% next year."

The business climate index rose for both levels of trade.

Retailing firms are far more satisfied with their current business situation and, since April 2012, expectations have reached their highest level.

German Elections in September

Ahead of the national vote on 22 September, politicians' concern over countries economic environment remains on the back burner as lawmakers expect 0.5% growth this year.

As the confidence over business prospects show improvement in Germany, the eurozone's prolonged credit crunch seemed to be at ease.

Surveys from Germany and Italy indicated positive outlook of businesses and consumers reactions affecting eurozone's business prospect.

Last month, loans to eurozone businesses fell by €13bn ($17.2bn, £8.5bn), following similar drops in April and May.

"All in all, the business mood is pretty reasonable, although we are not about to see a boom," said Ralph Solveen at Commerzbank.

The Ifo report said that firms were slightly less optimistic about their business outlook, with a sub-index inching down one tick to 102.4 in July.

However, they were more positive about their current business, with the conditions sub-index rising to 110.1, from 109.4.