By Paul Carrel and Rene Wagner

BERLIN (Reuters) – German business morale rose in November and Europe’s largest economy is on track to grow by 0.2% in the fourth quarter as its domestic strength more than offsets a manufacturing recession, the Ifo economic institute said on Monday.

Munich-based Ifo said its business climate index rose to 95.0 in November from 94.7 in October. The November reading was in line with a Reuters consensus forecast.

“One thing is clear now: growth will not go into freefall for the time being,” said Thomas Gitzel, economist at VP Bank, but he said Ifo’s warning that the manufacturing sector is “still stuck in recession” was cause for concern.

“It should be noted that developments in the manufacturing sector precede those in the services sector,” Gitzel said. “The dangers for the German economy have by no means been averted.”

Europe’s biggest economy is going through a soft patch as its export-oriented manufacturers cope with trade friction, a struggling car industry and uncertainties over Britain’s planned departure from the European Union.

Detailed data released on Friday showed strong exports, state spending and consumers helped the German economy avoid a recession in the third quarter. The figures confirmed a preliminary reading of a 0.1% expansion on the quarter.

Ifo economist Klaus Wohlrabe said it was too early to speak of a turnaround in the German economy.

“Companies tell us that industrial order backlogs are still not satisfactory,” he told Reuters in an interview.

Conservative Chancellor Angela Merkel’s right-left coalition government has rejected calls from industry groups and economists for a stimulus package to put the economy firmly back on a growth trajectory.

In its 10th successive year of growth, the economy has been relying on strong consumption as exports weaken, which resulted in a second quarter GDP contraction of 0.2%.

Economists have been urging the government to ditch its policy of incurring no new net debt, saying it should instead borrow to finance a stimulus package.

The government seems to be betting instead on an easing of trade frictions between the United States and both China and the EU to revive Germany’s manufacturing sector.

(Writing by Paul Carrel; Editing by Tassilo Hummel and Thomas Escritt)