In October, German investor sentiment was less pessimistic than expected, despite the fact that the current economic situation left little room for optimism following a drop in confidence the month before.

The ZEW economic research institute reported on Tuesday that its economic sentiment index increased slightly in October, to -59.2, from -61.9 in September, beating the -65.7 predicted by analysts polled by Reuters.

The institute’s current conditions index, on the other hand, fell by 11.7 points in October to -72.2.

Price cuts for gas and electricity have helped to stabilize sentiment, according to Dekabank analyst Andreas Scheuerle, but the fact that they have yet to take effect explains the deterioration in how the economy is viewed.

Based on an expert commission’s recommendation, the German government will provide households and small and medium-sized businesses with a one-time payment equal to one month’s gas bill this year, followed by a price-control mechanism beginning in March.

However, the “economic outlook has deteriorated again,” according to ZEW President Achim Wambach, who warned that the likelihood of GDP falling in the next six months has increased significantly, a sentiment shared by analysts.

“Despite the gas price brake, the energy crisis is not off the table and the global situation is serious,” said Alexander Krueger, chief economist at Hauck Aufhaeuser Lampe private bank, who added: “The economy is on a recession course.”

In its latest forecast, the German government predicts 1.4 per cent growth this year and 0.4 per cent contraction the following year.

The ZEW’s indicators for eurozone sentiment and assessment of current conditions mirrored those of Germany, with sentiment rising slightly in October and the situation indicator falling sharply.

(Adapted from BusinessInsider.com)

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