BERLIN, Aug 15 (Reuters) – German investor morale improved unexpectedly in August, the ZEW economic research institute said on Tuesday, but it is still firmly in negative territory as the mood in Europe’s largest economy remains clouded.

ZEW’s economic sentiment index rose to -12.3 points from -14.7 points in July. Analysts polled by Reuters had expected sentiment to stagnate in August with a reading of -14.7.

ZEW president Achim Wambach said the slight improvement indicates investors expect the situation in Germany to improve by the end of the year.

A more favourable outlook for the United States’ economy and anticipation of an end to interest rate hikes in the euro zone and U.S. helped boost expectations for Germany, he added.

“However, these heightened expectations need to be viewed in the context of a significantly worsened assessment of the current economic situation in Germany,” he added.

The index measuring the current situation in Germany plunged further than expected in August, to -71.3, from -59.5 the month before. Analysts had forecast an August reading of -63.0.

“The slight brightening of economic expectations is positive news, at least on the surface,” said Elmar Voelker, senior fixed income analyst at LBBW Research.

“However, the renewed deterioration in the assessment of the current situation underscores the fact that stabilization is taking place from an extremely weak starting position. Recession concerns remain high,” he added.

The German economy stagnated in the second quarter of 2023, missing forecasts for modest growth, as weak purchasing power, higher interest rates and low factory order books all weighed on the euro zone’s largest economy.

ZEW’s August results likely foreshadow a lack of turnaround in other economic sentiment indicators, particularly the Ifo business climate index due next week, said analysts.

“Waiting for a turnaround in sentiment is now like waiting for Godot,” said Hauck Aufhaeuser Lampe chief economist Alexander Krueger.

Reporting by Miranda Murray, Editing by Friederike Heine and Conor Humphries

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