In June, a modest improvement in investor morale provided a glimmer of hope that Germany's current recession may be relatively mild. However, economists were quick to caution that a

significant turnaround is not yet on the horizon.

The ZEW economic research institute's economic sentiment index remained in negative territory at -8.5 points in June, showing a slight improvement from -10.7 points in May. This result surpassed expectations, as a Reuters poll had forecasted a decline to -13.1.

ZEW President Achim Wambach stated that experts do not foresee an improvement in the economic situation during the second half of the year. He warned of persistent challenges, particularly in export-focused sectors grappling with a weak global economy.

This uptick in sentiment follows three consecutive months of decline and comes as Germany continues to face ongoing economic difficulties, having initially managed to ward off the feared energy crisis during the winter of 2022/23.

Germany, the largest economy in Europe, entered a recession in the first quarter of this year, as the spending power of consumers impacted by inflation failed to offset various headwinds, including the sudden halt in Russian energy imports following the Ukraine invasion.

Recent economic data further contributed to the uncertain outlook, with an unexpected drop in industrial orders and weaker-than-expected retail sales in April.

Despite these challenges, Wambach described the current recession as "generally not considered particularly alarming."

Thomas Gitzel, Chief Economist at VP Bank, referred to the economic sentiment index as a "glimmer of hope," suggesting that the worst may be behind them.

However, Alexander Krueger, Chief Economist at Hauck Aufhäuser Lampe bank, cautioned that improved expectations do not guarantee a turnaround, pointing to the decline in investors' assessment of the current situation.

The ZEW's current conditions index dropped to -56.5 points in June from -34.8 the previous month.

Krueger added, "Growth forecasts could decline further, especially as China is already showing signs of weakening. Germany is likely to continue lagging behind other eurozone countries for an extended period."

The European Central Bank is expected to raise rates on Thursday, and another increase in July is also likely, potentially slowing down economic growth and keeping the eurozone expansion below its full potential for years to come. Photo by Ra'ike (Wikipedia), Wikimedia commons.