BERLIN (Reuters) -A modest improvement in investor morale in June fuelled hopes on Tuesday that Germany’s current recession could be a mild one, but economists were quick to warn that there was no considerable turnaround on the horizon.
The ZEW economic research institute’s economic sentiment index remained in negative territory at -8.5 points in June, up from -10.7 points in May. A Reuters poll had forecast a decline to -13.1.
“Experts do not anticipate an improvement in the economic situation during the second half of the year,” ZEW president Achim Wambach said, warning of persistent headwinds as export-focused sectors struggled with a weak global economy.
The improvement came after three consecutive months of decline, and as Germany struggles with more persistent economic challenges after initially fending off a much-feared energy crunch in the winter of 2022/23.
Europe’s largest economy slipped into recession in the first quarter of this year, as spending by inflation-hit consumers failed to offset other headwinds, including the abrupt end to Russian energy imports following the Ukraine invasion.
Recent economic data added to the cloudy outlook, with an unexpected drop in industrial orders and weaker-than-forecast retail sales in April.
However, Wambach said the current recession was “generally not considered particularly alarming”.
The economic sentiment index offered a “glimmer of hope”, said Thomas Gitzel, chief economist at VP Bank.
“Possibly the worst is behind us,” he said.
But even somewhat improved expectations were no guarantee of a turnaround, said Alexander Krueger, chief economist at the Hauck Aufhäuser Lampe bank, pointing to the dip in investors’ assessment of the current situation.
The ZEW’s current conditions index fell to -56.5 points in June from -34.8 the previous month.
“Growth forecasts have further downward potential, also because China is already weakening again. Germany will continue to lag behind other euro countries for a long time,” Krueger said.
The European Central Bank is all but certain to raise rates again on Thursday and another increase in July is also likely, a further brake on economic growth that could keep the euro zone’s expansion below its potential for years to come.
(Reporting by Rachel More, additional reporting by Balazs Koranyi;Editing by Miranda Murray, Simon Cameron-Moore and Emelia Sithole-Matarise)
