(Bloomberg) --

Confidence in Germany’s near-term outlook improved in January as companies expect the latest virus wave to prove only a temporary setback for the recovery. 

A business expectations gauge compiled by the Munich-based Ifo Institute rose to 95.2, more than economists predicted. Manufacturers saw supply bottlenecks easing at the start of the year, and even services providers were optimistic about the future -- despite current curbs on activity.

The report adds to signs that the region’s largest economy is proving fairly resilient to the restrictions imposed to contain the coronavirus’s omicron strain. 

While the Bundesbank said Monday that the economy probably contracted “slightly” in the fourth quarter, it foresees growth of 4.2% this year. At the same time it warned that inflation is likely to remain “extraordinarily high” in the short term -- a potential headwind for business.

“The German economy is starting the new year with a glimmer of hope.,” Ifo President Clemens Fuest said in a statement. 

Yet new risks have emerged in the form of a potential conflict with Russia and a tightening energy crunch. Europe’s firms have more at stake than their U.S. counterparts because they’ve invested more in Russia.

 

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