(Bloomberg) -- Investor confidence in Germany’s economic outlook rebounded to its highest level since June on hope that record euro-era inflation may be peaking. 

The ZEW institute’s gauge of expectations climbed to -36.7 in November from -59.2 the previous month, better than economists polled by Bloomberg had expected but still below its long-term average in anticipation of a recession. An index of current conditions also advanced.

“This is likely to be related above all to the hope that inflation rates will fall soon,” ZEW President Achim Wambach said Tuesday in a statement. “In this case, policymakers would not have to hit the brakes on monetary policy as hard and/or for as long as feared. However, the economic outlook for the German economy is still clearly negative.”

German output is seen shrinking this quarter and next as the surge in natural gas prices resulting from Russia’s war in Ukraine weighs on households and manufacturers. Output in the chemical industry, a heavy user of energy, has slipped as companies struggle to pass on higher costs to consumers.

The risk of shortages has receded, however, thanks to unusually warm October weather and gas-storage facilities being largely full. German bankers sought to play down the threat of economic malaise this week, saying many companies will be able to adapt. 

Even so, Germany is expected to drag the euro zone into a recession this winter. Data released Tuesday showed output in the 19-nation bloc rose 0.2% in the third quarter -- matching an initial reading from last month.

--With assistance from Kristian Siedenburg.

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