BERLIN, Aug 26 - Germany's crucial Ifo business sentiment index is expected to rise in August and analysts will focus on what firms say about current conditions for signs Europe's biggest economy is crawling out of recession. Economists polled by forecast the Ifo index, to be released at 0800 GMT on Tuesday, would edge up to 90.0 in August, with forecasts ranging from 89.5 to 91.3 . The index, based on a survey of around 7,000 firms, rose in July to a 12-month high of 89.2, driven by a jump in expectations, although the current conditions component slipped. It was the third consecutive rise in the index, a fact which has been widely interpreted as heralding an economic recovery.
Belgium's business confidence, widely viewed as a bellwether for the health of the euro zone economy, improved in August to its highest level in seventh months thanks to a pick-up in manufacturing and construction. The Belgian central bank said on Monday the indicator was minus 12.2 in August compared to minus 16.0 in July. While Belgium is one of the euro zone's smaller members, its leading indicator is seen as of wider significance because the country does most of its business with its European neighbours. "It is clear from many countries in the euro zone that business sentiment has turned the corner," said Elwin De Groot, economist at Fortis. "It bodes well for the Ifo index." Last week's ZEW sentiment indicator, a survey of financial analysts seen as a guide for Ifo's expectations component, rose for the eighth month in a row to 52.5 points.
Economists are watching for a pick-up in the current conditions component of the Ifo index for clues on how soon Germany would start to recover. The ZEW survey's current conditions component showed a slight improvement but was still close to 10-year lows. Firms' expectations are not forecast to rise as strongly as in previous months as exuberance about government plans to reform the economy and cut taxes dies down amid uncertainty about what will actually be implemented this autumn. Most private sector economists expect the German economy will barely emerge from stagnation this year, after posting growth of just 0.2 percent in 2002. The government has begun preparing the ground for a cut in its forecast for 0.75 percent growth this year when it is reviewed in October.//