BERLIN, Aug 26 - Germany's Ifo business climate index rose for the fourth month in a row to 90.8 in August from 89.3 in July, the Ifo institute said on Tuesday, exceeding analysts' forecasts and prompting hopes of economic recovery. "The new survey data underline the Ifo forecast for an economic recovery in the second half of the year," Ifo President Hans-Werner Sinn said in a statement accompanying the monthly survey of 7,000 firms.
The business conditions component of the index, which markets were closely monitoring as it gives an indication of what firms think about the current economic situation, rose by 1.2 points to 79.9 points for western Germany, while the expectations component was up at 102.1 from 100.2. "Unlike other months the improvement was not just limited to expectations for the next six months. Assessments of the current situation also improved," Sinn said. The headline west German climate index was above the median forecast in a poll of 22 economists for a rise to 90.0, with the range of forecasts spanning 89.5 to 91.3. The euro edged up briefly versus the dollar after the Ifo data. By 0803 GMT it had risen to $1.0863 but it eased quickly to $1.0852. Earlier it hit four-month lows at $1.0804 amid worries over continued investment outflows from euro zone bonds into U.S. and Japanese equities.
The Ifo figures gave German shares a lift, with the blue-chip DAX index <.GDAXI> up 0.9 percent after the data. 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 and remained cautious even after the Ifo figures. "The most important figure was current conditions, which showed a comparatively strong rise but I have to say it's still low and signals minimal growth in the third quarter," said Andreas Rees at Hypovereinsbank. "The expectations component was very high and would signal exuberant growth in the fourth quarter, but looking at the current conditions component, I personally don't believe that will materialise," said Rees.
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. "I'm concerned about the difference between expectations and current conditions which seems to be widening and shows that expectations are becoming further removed from what's really happening. We saw this last year and the expected upturn never emerged," said Rees. The Ifo rise came after 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. Last week's ZEW German 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.//