San Francisco Frontiers - German business morale up again as prospects brighten

The Ifo institute's monthly confidence barometer, based on a survey of about 9,000 companies, reached 88.6 points, up from a reading of 86.4 points in November.

Earlier in the year, the gauge declined for months after Russia's invasion of Ukraine, and subsequent reduction in gas exports, sent inflation soaring and triggered warnings of recession for next year.

But a massive government fund to cap prices and efforts to diversify the country's energy supplies have eased the immediate sense of crisis.

"Sentiment in the German economy has brightened considerably," Ifo president Clemens Fuest said.

"German business is entering the holiday season with a sense of hope."

ING bank economist Carsten Brzeski said the reading shows that "hope has returned".

"Hope that the economy might even avoid a winter recession or at least hope that it will only be a mild one."

But he cautioned "the downsides still outweigh the upsides", noting that gas reserves were dropping fast due to cold weather, as well as warning signs there could be a weakening of global trade.

After months flashing red, leading indicators have started giving more optimistic readings in recent weeks.

Last week, Ifo said the looming recession will be milder than expected, with economic output shrinking 0.1 percent in 2023, revising its previous prediction of a 0.3 percent contraction.

And another influential institute, IfW Kiel, even predicted that the economy would dodge recession due to the government relief measures.

In its autumn forecast, the German government said the economy would contract 0.4 percent next year.

G.Miller--SFF