Rate cut optimism lifts German investor morale in January

BERLIN (Reuters) -Expectations of lower interest rates lifted German investor morale in January, the ZEW economic research institute said on Tuesday, but the assessment of the current situation shows the economy’s recovery will be slow.

The ZEW economic sentiment index rose to 15.2 points from 12.8 points in December. Analysts polled by Reuters had pointed to a January reading of 12.0.

“Economic expectations for Germany have improved again,” said ZEW president Achim Wambach. “This is because now more than half of the respondents assume that the ECB will make interest rate cuts in the first half of the year.”

The ZEW economic sentiment indicator has gradually recovered since mid-2023.

“The continued rise in the economic barometer implies that the German economy is heading towards a moderate economic recovery,” said Thomas Gitzel, chief economist at VP Bank Group.

In contrast, the assessment of the economic situation in Germany has remained virtually unchanged, with the corresponding indicator losing 0.2 points and falling to minus 77.3 points.

“Survey respondents agree with us that the a significant rebound in GDP will have to wait, the first quarter rebound will be muted,” said Melanie Debono, senior Europe economist at Pantheon Macroeconomics.

The German economy contracted by 0.3% in 2023, due to persistent inflation, high energy prices and weak foreign demand, the federal statistics office said on Monday.

The global economic environment remains weak, Gitzel said, noting that sentiment among companies in China and the U.S. is depressed.

“Germany is dependent on global trade and a look at its most important trading partners shows that things are not going well,” he said.

(Reporting by Maria Martinez; Editing by Linda Pasquini, Miranda Murray and Christina Fincher)