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German investor confidence improved more than expected in October, a key survey showed Tuesday, thanks to slowing inflation and growing hopes that the European Central Bank is done hiking interest rates.
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The ZEW institute’s economic expectations index surged by 10.3 points month-on-month to reach minus 1.1 points, the third consecutive monthly rise.
Analysts surveyed by FactSet had expected a smaller increase, pencilling in a reading of minus seven points. A negative reading means most investors are pessimistic.
“It seems that we have passed the lowest point,” ZEW president Achim Wambach said in a statement.
Although the assessment of Germany’s current economic situation remained bleak, brighter expectations for the months ahead were driven “by the anticipation that inflation rates will decrease further and the fact that now more than three-quarters of respondents anticipate stable short-term interest rates in the eurozone,” he said.
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“Negative factors such as the Israel conflict — cited by some respondents as a reason for revising their growth forecasts downward -– had only limited impact on the overall more optimistic outlook,” he added.
Germany’s annual inflation rate fell to 4.5 percent in September, the lowest level since the start of the Ukraine war.
The European Central Bank has hiked rates at an unprecedented pace since last year in a bid to cool runaway prices.
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After 10 straight increases, analysts expect the ECB to hold rates steady at next week’s monetary policy meeting.
The German economy, Europe’s largest, has been hit hard by high inflation, elevated energy prices and a manufacturing slowdown in recent months.
The government expects the economy to shrink by 0.4 percent this year, before rebounding next year with growth of 1.3 percent as demand picks up again.
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