German business morale up again as outlook improves

German business confidence improved for a fourth straight month in January, a key survey showed Wednesday, as an energy crisis eases and hopes grow Europe’s top economy will dodge a downturn.

The Ifo institute’s monthly confidence barometer, based on a survey of about 9,000 companies, reached 90.2 points, up from a reading of 88.6 points in December.

The gauge fell for months in 2022 after Russia’s invasion of Ukraine, and drastic reduction of key gas exports, sent energy and food costs soaring.

But government relief measures to cap prices, mild winter weather and falls in energy prices have started to bring inflation down, and some now predict that Germany will avoid a long feared recession.

“The German economy is starting the new year with more confidence,” said Ifo president Clemens Fuest.

In the manufacturing sector — a pillar of the German economy — the index continued to climb, with expectations for the coming six months “noticeably brighter”, Ifo said.

But LBBW bank analyst Jens-Oliver Niklasch warned that one “should not become optimistic too quickly, just because the feared crash has not happened”.

Companies were still struggling with difficulties ranging from high energy prices, to supply chain problems and rising interest rates, he said.

After months of dire warnings due to the energy crisis, there have been a recent flurry of more optimistic predictions for the German economy’s prospects in 2023.

Earlier this month, Chancellor Olaf Scholz predicted that Germany will dodge a recession this year.

Back in October, the government had forecast the economy would contract by 0.4 percent in 2023.

But fresh official economic forecasts, due to be released later Wednesday, are expected to paint a rosier picture.