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Rise in German investor morale 'not enough to become hopeful'

·2-min read

BERLIN (Reuters) -German investor sentiment rose slightly in May on expectations the economic situation in Europe's largest economy will deteriorate less markedly than predicted previously as the European Central Bank acts to tame inflation.

The ZEW economic research institute said on Tuesday its economic sentiment index rose to -34.3 points from -41.0 in April. A Reuters poll had pointed to a May reading of -42.0.

"The experts still assume that (the economic situation) will continue to deteriorate, but at a lower pace than expected before," ZEW President Achim Wambach said in a statement.

COVID-19 restrictions in China led investors to take a dimmer view of the economic situation there and "this is a heavy weight on the future development of the German economy", Wambach added.

Jens-Oliver Niklasch, economist at LBBW, said the slight rise in the ZEW reading did not mark a turn for the better.

"When the experts think the bottom has been reached, the ZEW business cycle balance usually shoots up sharply," he said, adding that uncertainty was too high for that now. "Today's mini-increase is not enough to become hopeful."

ZEW surveyed 184 analysts from May 2-9. A large majority expected the European Central Bank to raise interest rates during the next six months.

"Accordingly they expect a decline of inflation rates from their very high current level," Wambach added.

Hawkish ECB policymaker Robert Holzmann told the Salzburger Nachrichten paper in an interview this month the bank should hike interest rates as many as three times this year to combat inflation.

A ZEW index for current conditions fell to -36.5 from -30.8. The consensus forecast was for a reading of -35.0.

Official data released last Friday showed German industrial production fell more than expected in March as pandemic restrictions and war in Ukraine disrupted supply chains, making it difficult to fill orders.

(Writing by Paul CarrelEditing by Riham Alkousaa and Raissa Kasolowsky)

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