German investor morale rises more than expected in December, ZEW finds

By Maria ‌Martinez

BERLIN, Dec 16 (Reuters) - German investor morale rose more than expected in December, the ZEW economic research ‍institute ‌said on Tuesday, as expectations about Germany's economic situation improve.

The index rose to 45.8 points in December. ⁠Analysts polled by Reuters had expected a reading ‌of 38.7, up only slightly from last month's 38.5.

"After three years of economic stagnation, chances for a recovery of the economy are good, and this is reflected in the sentiment," said ZEW president Achim Wambach.

He said expansive fiscal policy ⁠will provide new momentum to the economy.

Germany's government has approved a surge in public spending targeting defence and infrastructure, hoping to close ​gaps in long-neglected areas of investment while hauling the economy out ‌of its downturn.

The special infrastructure funds must be ⁠released next year quickly and in a targeted manner, however, said Thomas Gitzel, chief economist at VP Bank.

"If this happens, there would be multiplier effects that could affect larger parts of the German ​economy," said Gitzel.

ASSESSMENT OF CURRENT SITUATION WORSENS

While expectations improved, the assessment of the current economic situation fell to minus 81.0 points from minus 78.7 points the previous month.

"The recovery remains fragile," Wambach said, pointing to trade conflicts, geopolitical tensions and weak investments.

Alexander Krueger, chief economist at Hauck Aufhaeuser Lampe Privatbank, said ​the renewed ‍deterioration in the assessment of the ​current situation was worrying.

German Chancellor Friedrich Merz promised an autumn of economic reforms to revive Europe's biggest economy, which is only expected to grow modestly this year.

"The autumn of reforms has not only been cancelled, there is no catch-up date," Krueger said.

The decline in the assessment of the current situation fits with Deutsche Bank's view that the economy will hardly do more than stagnate this year, but could grow by ⁠somewhat more than 1% in 2026, economist Marc Schattenberg said.

Monthly hard data for the fourth quarter so far have been positive, and business surveys such as ​the composite PMI published on Tuesday signal a better fourth quarter after GDP stagnated in the third quarter, said Melanie Debono, senior Europe economist at Pantheon Macroeconomics.

Pantheon Macroeconomics forecasts German GDP to have risen in the fourth quarter and expects growth to pick up in the ‌coming quarters, with risks for next year tilted to the upside assuming the government follows through on its fiscal plans.

(Reporting by Maria Martinez, additional reporting by Klaus Lauer, Editing by Miranda Murray and Hugh Lawson)