© Reuters. FILE PHOTO: Birds are seen over the skyline as the sun rises in Frankfurt, Germany, September 22, 2022. REUTERS/Kai Pfaffenbach

By Maria Martinez

BERLIN (Reuters) -German business morale rose slightly in April due to an improvement in companies’ expectations, adding to positive signs as Europe’s largest economy hopes to have dodged a winter recession, a survey showed on Monday.

The Ifo institute said its business climate index stood at 93.6 following a revised reading of 93.2 in March. The increase was weaker than expected, with a Reuters poll of analysts pointing to an April reading of 94.0.

The German economy is likely to have expanded in the first quarter on a rebound in industrial production, the Bundesbank said in a monthly report on Monday, revising its previous forecast for a small contraction.

“German business worries are abating, but the economy is still lacking momentum,” Ifo’s president Clemens Fuest said.

Economic momentum in Germany is likely to remain weak for the time being, said Ulrich Wortberg, senior economist at German bank Helaba. “At least a recession should be avoided, and we expect a gradual recovery in the course of the year,” he added.

The recent banking problems triggered by Credit Suisse and the bankruptcy of Silicon Valley Bank appeared not to have spilled over into the real economy.

“Banking turmoil has had no impact on business sentiment,” Ifo’s economist Klaus Wohlrabe said. “Contagion effects have failed to materialise.”

While companies’ expectations improved, they assessed their current situation as slightly worse, the institute said.

“This combination nicely illustrates that lower wholesale gas prices and the reopening of the Chinese economy have boosted economic confidence but that the German economy is still far away from strong growth,” ING’s global head of macroeconomics Carsten Brzeski said.

High employment should also keep supporting consumption, and unemployment is likely to fall slightly in the coming month, according to the Bundesbank.

But the outlook is still mixed as inflation continues to weigh on consumption and the reversal in underlying price pressures has yet to work its way through to consumers, the bank added.

“Recent wage settlements, like last weekend’s agreement in the public sector, will offset the loss in purchasing power but only partly and only gradually,” Brzeski said.

German public sector workers agreed on a wage deal with employers on Saturday, ending a dispute affecting around 2.5 million workers that has disrupted the transport sector in Europe’s biggest economy.

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