BERLIN (Reuters) – German investor sentiment was in positive territory in January for the first time since the Ukraine war began as signs point to a milder recession over the winter months than initially feared, the ZEW economic research institute said on Tuesday.
The institute’s economic sentiment index rose to 16.9 from minus 23.3 in December, beating expectations by analysts polled by Reuters of a reading of minus 15.0.
“For the first time since February 2022, the month in which the war in Ukraine began, the indicator points to a noticeable improvement in the economic situation over the next six months,” ZEW President Achim Wambach said.
Economy Minister Robert Habeck said in an interview with broadcaster Welt TV on Tuesday he expects Germany to avoid a recession, while the BDI industry association forecast a 0.3% contraction this year.
Wambach said a more favourable situation on the energy markets and energy relief measures by the German government in particular contributed to the index’s 40.2-point leap in January.
The prospect of easing inflation lifted expectations for consumer-related sectors while the lifting of COVID-19 restrictions in China has brightened the picture for export-oriented and energy-intensive sectors, he added.
“The easing inflationary shock and well-filled gas storage facilities are making fears of a recession evaporate,” said Hauck Aufhaeuser Lampe private bank economist Alexander Krueger.
German inflation eased further in December, with consumer prices rising by 9.6% year on year in harmonised terms, the federal statistics office said, after an annual harmonised inflation rate of 11.3% in November and 11.6% in October.
Krueger warned, however, that the German economy was not out of the woods yet, with material bottlenecks, losses in real income and the pandemic situation in China a reason for caution.
The indicator measuring current conditions recovered slightly in January, rising to minus 58.6 from minus 61.4.
VP Bank economist Thomas Gitzel was similarly cautious: “The improvement in many leading economic indicators primarily reflects the absence of horror scenarios,” he said, pointing out that just a few weeks ago, there were fears about the possibility of a gas shortage and potential energy rationing.
The federal statistics office said last week that Germany’s economy likely stagnated in the fourth quarter of last year and grew 1.9% over the full year, suggesting Europe’s largest economy may just escape a recession over the winter.
A recession is commonly defined as two successive quarters of contraction, and the statistics office’s fourth quarter figure of zero growth was an initial readout that might yet be revised.
(Reporting by Miranda Murray, Maria Martinez and Rachel More; Editing by Matthias Williams, Alison Williams and Emelia Sithole-Matarise)