German investor confidence rose more than expected in February on hopes of an interest rate cut, although assessments of current conditions were somewhat poor, economic research institute ZEW said on Tuesday.
The institute reported an increase in the economic sentiment index to 19.9 points from 15.2 points in January. The increase in February, which was the seventh in a row, beat analysts' expectations polled by Reuters of 17.5.
According to ZEW president Achim Wambach, more than two-thirds of respondents expect the European Central Bank to make interest rate cuts in the next six months, and nearly three-quarters expect interest rate cuts by the United States central bank in the near future.
"The delayed reduction in interest rates seems to have an impact on investor behavior", said the chief economist of private bank Hauck Aufhaeuser Lampe, Alexander Krueger.
Financial market players have lowered their expectations for interest rate cuts from the U.S. central bank in recent weeks as inflationary pressures persist and U.S. economic data remains mostly strong.
Despite the improvement in German investor confidence, an assessment of the economic situation shows that "the German economy is in a poor state," Wambach said.
The rating fell more than expected, to -81.7 points in February from -77.3 points a month earlier. Analysts expected a reading of -79.0 points. According to Wambach, it was the lowest reading since June 2020.
Economists differed on what to expect from the reading, with Krueger saying that the drop was a sign that Europe's largest economy was headed for recession, while the Bank's VP economist, Thomas Gitzel, said that the assessment, while still relatively low, was not further indicates that a recession is occurring.
Germany's economy will shrink by 0.3% in 2023, due to persistent inflation, high energy prices and weak overseas demand, the federal statistics office said last month.
