German business morale rose unexpectedly for the third month in a row in September, suggesting company executives in Europe’s largest economy remain upbeat despite concerns of an economic slowdown in China.

The Munich-based Ifo institute said that the vast majority of survey responses had come before the Volkswagen emissions scandal erupted last Friday and that any economic impact from that would likely appear in next month’s report. Analysts have warned that the Volkswagen crisis over rigged emissions tests could develop into the biggest downside risk for Germany’s export-oriented economy.

"We had expected that the export expectations of industry would have perhaps fallen a bit," Ifo economist Klaus Wohlrabe said, pointing to China. "They did not, they actually rose slightly."

Ifo’s business climate index which is based on a monthly survey of some 7,000 firms rose to 108.5 in September from an upwardly revised 108.4 in August. That was the strongest reading since May and compared with the Reuters consensus forecast for a drop to 108.0.

“The German economy looks in very robust shape,” Mr Wohlrabe said, noting that an influx of refugees had a positive impact on the retail sector.

KfW chief economist Joerg Zeuner said German companies had shrugged off the recent turmoil on the financial markets and the concerns about weaker demand from emerging markets.

“But we will keep a very close eye on the sales of the German motor sector from now on,” Mr Zeuner added, noting that the sector accounted for nearly a fifth of total German exports.

The government expects robust domestic demand and strong foreign trade to propel the economy this year, predicting 1.8 per cent growth for 2015 after 1.6 per cent in 2014.

A survey among purchasing managers in German companies showed on Wednesday that the private sector remained on a growth path in September, suggesting that the economy as a whole grew by around 0.4 per cent in the third quarter.

But in a sign of weakness, morale among consumers declined for the second consecutive month heading into October amid global economic risks and uncertainty about the handling of a growing number of refugees.

The Ifo showed that sentiment in the retail, wholesale and construction sectors improved while the sub-index for the manufacturing sector inched down.

Reuters