Frankfurt, March 26 (Bloomberg) -- The Ifo institute's index of German business confidence was probably little changed in March, analysts said, as executives weighed the impact on a slowing economy of war in Iraq. The institute, which each month polls 7,000 economists, will probably say its index of western German business confidence rose to 89.0 from February's 88.9, a Bloomberg survey of 21 economists showed. Ifo said as many as a quarter of the replies came after the start of the war. ``Executives were probably optimistic the war would be quick, but that could change soon,'' said Joerg Kraemer, an economist at Invesco Asset Management in Frankfurt. ``Even if we see an increase, I wouldn't proclaim an economic recovery. Growth is just too anemic.''
Rising industry production, factory orders and retail sales in Germany suggest Europe's largest economy may avoid contracting this quarter. It has barely grown since the recession in the second half of 2001. Deutsche Lufthansa AG, Europe's third-largest airline, said on Tuesday it will reduce the long-haul fleet by seven aircraft as fewer passengers fly because of the war in Iraq. Italian business confidence and French consumer spending both dropped for the first time in three months as the euro region's $7 trillion economy falters, reports Tuesday showed. Together with Germany, they account for more than two thirds the gross domestic product of the dozen euro nations.
`War Hurts Confidence'
Ifo, which is partly government-funded, will publish its business confidence index at 10 a.m. in Frankfurt today. Forecasts for the index ranged from a drop to 87.4 to an increase to 89.6. U.K. Prime Minister Tony Blair on Tuesday said allied forces, which last Thursday started attacking Iraq, are as close as 50 miles away from Baghdad. President George W. Bush says the war is necessary to disarm Iraqi leader Saddam Hussein and remove him from power. Germany's benchmark DAX Index rebounded on Tuesday from the biggest drop in 18 months on Monday, gaining 3.4 percent to 2636.1 at the close in Frankfurt. Still, resistance to the U.S.-led invasion of Iraq has raised concern about supplies and pushed up oil costs. The price of Brent crude for May delivery rose 4.2 percent this week. ``The war hurts confidence at a time when people are already hesitant,'' said Hans-Joerg Naumer, an economist at Deutscher Investment Trust in Frankfurt, which manages the equivalent of $48 billion.
U.S. Consumer Pessimism
Consumer confidence in the U.S fell this month to the lowest in almost a decade as the buildup to war and higher energy costs threatened to slow the world's largest economy. The U.S. buys about a fifth of Europe's exports. The euro's 22 percent increase against the dollar in the past year adds to exporters' woes. Heinrich von Pierer, chief executive officer of Siemens AG, said Tuesday Germany's largest manufacturer has to contend with less favorable business conditions in the U.S. because of the currency's rise. European Central Bank Chief Economist Otmar Issing said this week that it's impossible at the moment to gauge the effect of the war on the economy and warned against ``exaggerated expectations'' the bank may lower rates again soon. The ECB on March 6 pared borrowing costs in the dozen nations using the euro to 2.5 percent from 2.75 percent. ``The most likely scenario is that real GDP growth will gradually increase in the second half of this year,'' Issing said, adding expectations for economic activity are ``overshadowed by the implications of the war in Iraq.'' Investors have scaled back expectations for a rate reduction, interest rate futures trading shows. The yield on a three-month euro deposit maturing in June was 2.36 percent at 4:28 p.m. Tuesday in Frankfurt, compared with 2.25 percent two weeks ago. The current money market rate is at 2.53 percent. //www.quote.bloomberg.com