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Investor confidence in Germany’s economy hit its highest level since July 2021 on hopes for a strong recovery once the current wave of Covid-19 infections passes. 

The ZEW institute’s gauge of expectations jumped to 51.7 in January from 29.9 the previous month. An index of current conditions, however, dropped to a eight-month low of -10.2, reflecting tighter virus restrictions and curbs on activity.

“The economic outlook has improved considerably with the start of the new year,” ZEW President Achim Wambach said Tuesday in a statement. “The main reason for this is the assumption that the incidence of Covid-19 cases will fall significantly by early summer. The more positive economic expectations include the consumer-related and export-oriented sectors and thus a large part of the German economy.”

The growth prospects for Europe’s largest economy soured toward the end last year as the emergence of the coronavirus’s omicron strain added to drags on output from supply snarls and the fastest inflation in three decades. 

Gross domestic product shrank by between 0.5% and 1% in the fourth quarter, the Federal Statistics Office said last week. It’s likely to contract again in the three months through March, putting the economy on track for its second recession of the pandemic.

The spring, however, should mark a resumption in the recovery, with the Bundesbank predicting there’ll be “significant momentum” leading to growth of 4.2% for the whole of 2022.

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