June 25 (Bloomberg) -- Executives in Germany and Italy became more optimistic this month after the European Central Bank lowered interest rates to help foster an economic recovery and signs of a U.S. rebound increased. The Ifo institute in Munich's index of western German sentiment, Europe's most widely watched economic indicator, rose for a second month, to 88.8 from 87.6 in May. Economists expected an increase to 88. In Italy, a similar business confidence index gained to 91.6 in June from a 16-month low in May.
``If there's hope for a recovery in Europe, it rests with the U.S.,'' said Hans-Joachim Hass, chief economist of Germany's BDI industry group, which represents 100,000 companies including DaimlerChrysler AG. ``Confidence is rising in very small steps.'' Increased demand from the U.S., destination of about a fifth of Europe's exports, coupled with the lowest interest rates in the dozen euro nations in more than half a century, may help rekindle growth in the second half. The economies of Italy and Germany, which make up almost half of the euro region's economy, both contracted in the first quarter. Stocks rose after the Ifo report. The benchmark DAX index rose 7.27 points, or 0.2 percent, to 3224.61 at 11:21 a.m. in Frankfurt. The Dow Jones Stoxx 50 Index increased 7.84 points to 2437.84. The euro rose against the dollar for the first day in four, trading at $1.1519 at 10:21 a.m. in London.
Counting on U.S.
Hugo Boss AG, Germany's largest maker of clothing, expects the worldwide market for high-end menswear to improve in 2004, led by a recovery in the U.S. during the fourth quarter of this year. Remy Cointreau SA's fiscal second-half profit rose 5 percent, helped by U.S. demand for Remy Martin and other cognacs. Ifo's index, based on a survey of 7,000 executives, last month rose from a 14-month low. It peaked at 107.4 in November 1990 and reached a low of 76.7 in 1982. The Italian confidence index is compiled by the Rome-based Isae research institute and is based on a survey of 4,000 executives in Italy. Confidence rose in all German industries in June, led by an increase in sentiment among retailers, said Hans-Werner Sinn, president of the Ifo institute, in a statement. It's too early to say whether the economy is on the verge of a rebound, Sinn said. Belgian business confidence unexpectedly fell in June to the lowest level in more than a decade, the National Bank of Belgium said yesterday. French consumer spending dropped the most in almost four years in May amid rising unemployment and strikes, the Paris-based statistics office said today.
Euro's Effect
The euro's 18 percent gain against the dollar in the past year has helped bring Germany and Italy to the edge of recession by hurting the revenue and profitability of exporters. Heineken NV, the world's third-largest brewer, and Schering AG, the No. 1 maker of birth-control pills, are among the companies that have said the euro's gain is weighing on sales and profit. German Economics Minister Wolfgang Clement yesterday said economic growth will be ``little more than zero'' this year. With few signs of an increase in demand at home, European companies and investors are looking to the U.S., where consumer confidence was higher than forecast in June and economists expect orders for durable goods to have risen for a second month in three in May. The orders report will be published at 2:30 p.m. ``Customers in Asia and America may increase their orders,'' said Franz Richter, chief executive officer of Suess Microtec AG, a Munich-based producer of equipment for semiconductor makers that generates 60 percent of sales outside the euro zone. ``There's careful optimism, but I don't quite trust it yet.''
Contraction
To help stimulate an economic recovery and ward off the threat of deflation, economists expect the U.S. Federal Reserve to lower interest rates today. The Fed's target rate for overnight lending currently stands at 1.25 percent. French June business sentiment, to be published tomorrow at 8:45 a.m. in Paris, probably rose from a 14-month low, economists forecast. The Bank of France estimates the economy, Europe's third largest, didn't grow in the second quarter. Germany's economy, which accounts for about a third of the $8- trillion euro region, has barely grown since a recession at the end of 2001. Unemployment, which rose in 13 of the past 14 months, will encourage consumers to cut back spending this year, the HDE retail industry group estimates. Italy's economy shrank in the first quarter and optimism among consumers sank to a 6 1/2-year low in June. The jobless rate rose for the second month in April to 9.1 percent, the highest in a year, economists expect a report tomorrow to show.
Growing Confidence
Companies are more optimistic. Italian executives expect production over the next three months to improve, Isae said. The output indicator rose to 19, a nine-month high, from 16 in May, the report said. Industrial production probably rose in June, according to a survey of manufacturers conducted by the Confindustria employers' group. ``We have reached the bottom and now are starting to come out of it,'' said Ida Vana, the chairwoman of Selet Sensor Srl, which makes automated-machinery sensors in Turin, Italy. In Germany, executives were more optimistic about the current business and the outlook. Ifo's current conditions index gained for the first time in four months, to 79.4 from 78.3. Futures expectations rose for a second month, to 98.6 to 97.2. Underpinning hopes for a recovery, stocks have risen since the end of military action in Iraq, indicating investors predict a rebound in corporate earnings. Germany's DAX index, Europe's worst performing benchmark stock index last year, has gained 22 percent in the past three months. Europe's Dow Jones Stoxx 50 Index has increased 9 percent in the same period. The euro's appreciation came to a halt this month. The single currency has declined about 3 percent against the dollar since May 29. That may have helped boost confidence among exporters, economists said.
`I see certain chances of a recovery in the second half,'' Ulrich Ramm, chief economist of Commerzbank AG, told reporters on Monday. ``Companies aren't so concerned anymore that the euro will go through the roof.'' //www.bloomberg.com