German investors turned positive as recession fears faded

German investor sentiment turned positive for the first time since Russia’s invasion of Ukraine in January, in another sign that the downturn in Europe’s largest economy may not be as severe as feared.

The ZEW Institute’s investor expectations index of investor expectations for the next six months, a closely watched measure of economic sentiment, rose for the fourth consecutive month to 16.9 from -23.3 in December. The reading was well above minus 15 in a Reuters poll of economists.

The more favorable situation in energy markets and the brakes on energy prices of the federal government contributed to this [the improved reading]said Achim Wambach, head of the research institute in Mannheim.

The positive figure comes after Germany’s Federal Statistical Office announced last week that the country’s economy expanded by 1.9 percent last year. The bureau expects a recession in the fourth quarter, versus analysts’ previous forecasts of a contraction.

Rising gas prices in the wake of Russia’s invasion of Ukraine in late February have led to fears of a sharp downturn in Germany’s energy-intensive manufacturing sector. However, energy prices have fallen sharply in recent weeks to levels last seen before the war broke out. Broad government support for businesses and households has also helped mitigate the impact of the energy crisis.

These financial support measures, along with the lifting of Covid-19 restrictions in China, have led to increased consumption that has offset the economic blow of the war in Ukraine, according to the ZEW Institute.

Wambach said German export opportunities have also improved on the back of China’s easing of pandemic-related restrictions.

The jump of 40.2 points in investor sentiment came after the recent slowdown in German inflation. Harmonized consumer prices rose 9.6 percent in the year to December 2022, compared to 11.3 percent recorded in the previous month, according to final inflation data published Tuesday by Germany’s Federal Statistical Office.

However, the inflation figures reflected a decrease in gas and fuel inflation resulting from government subsidies and lower oil prices. Core inflation — which excludes changes in food and energy prices and is seen as a better measure of underlying price pressures — was 5.2 percent in December 2022, up from 5 percent in November.

The rise in the benchmark interest rate makes it likely that the European Central Bank will raise interest rates by another half percentage point in early February.

“With underlying price pressures continuing to rise, tight monetary policy will become an increasing burden on the economy this year,” said Francesca Palmas, chief European economist at Capital Economics.

After more than a decade of aggressive easing, the European Central Bank increased borrowing costs by 2.5 percentage points in 2022 to combat record high inflation in the eurozone, ending the year with a fourth consecutive rise in the record deposit rate, which now stands at 2 per dollar. cent. The ECB is expected to raise interest rates on multiple occasions during the first half of this year, before pausing over the summer.

The ZEW index measuring current conditions remained negative in January, although it improved slightly, rising to minus 58.6 from -61.4 in the previous month.

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