BERLIN, June 24 - Germany's Ifo business sentiment index, considered one of the country's most telling economic indicators, is expected to show only a slight rise in June, reflecting ongoing stagnation in Europe's biggest economy. According to a survey of 16 analysts, the Ifo west German business climate, due for release on Wednesday, will rise to 88.0 from 87.6 in May, with forecasts ranging from 87.0 to 88.8, reflecting analysts' uncertainty . The key business sentiment indicator posted a surprise rise in May, raising hopes for a second-half recovery in Germany. But few analysts expect any kind of vigorous upturn.
The government is forecasting gross domestic product (GDP) growth of 0.75 percent this year, though many private sector economists and think-tanks have cut their forecasts to between zero and 0.5 percent. Analysts said strikes in the eastern German engineering sector, which have hit the country's key auto sector, will be reflected in worse business sentiment in coming months. "Either this Ifo or the next one will show the impact of the strikes in eastern Germany," said Ulrich Kater of DGZ DekaBank.
ECONOMY DIFFICULT
Rainer Sartoris at HSBC Trinkaus & Burkhardt said the overall economic situation remains difficult in Germany. "The euro's high level and the weak domestic market will continue to weigh, as well as the weak jobs market," he said. However, the decision in early June by the European Central Bank to cut interest rates to two percent will lift spirits. Earlier this month the ZEW institute's expectations indicator for Germany rose by 2.6 points in June to 21.3, outstripping forecasts of a rise to 19.2 from May's 18.7. ZEW attributed part of the increase to the ECB rate cut. SEB analyst Klaus Schruefer said the rate cut could have an important psychological effect. "The ECB is signalling that it is willing and able to do something about weak growth," said Schruefer, who expects a further cut of 25 basis cuts in September. Analysts are also closely watching the Belgian central bank's leading indicator for June, due for release at 1300 GMT, which is seen stable in June.
The Belgian indicator is seen mirroring wider euro zone developments because of the country's open economy. The Munich-based Ifo economic institute is due to release its index at 0800 GMT on Wednesday. A turnaround could come next year, when German growth is expected to be stronger in part because several national holidays will fall on weekends. Ifo president Hans-Werner Sinn said on Tuesday he expected the German economy to grow 1.5 percent in 2004.//