UPDATE 2-German investor morale rebounds to highest since Ukraine war

(Adds context, analyst)

BERLIN, Dec 13 (Reuters) – German investor sentiment staged another recovery in December, reaching its highest level since the war began in Ukraine, as inflation expectations dropped and Europe’s biggest economy has so far avoided an acute shortage in energy supplies.

The ZEW economic institute said its economic sentiment index had risen for a third consecutive month to -23.3 from -36.7 in November. A Reuters poll had pointed to a December reading of -26.4.

“The vast majority of financial market experts expect the inflation rate to decline in the coming months,” ZEW President Achim Wambach said.

“Together with the temporary stabilisation on the energy markets, this leads to a significant improvement in the economic outlook,” he added.

Fears the energy crisis would cause an economic collapse have given way in recent weeks to expectations of a milder recession. The German government currently foresees a 0.4% contraction in 2023.

The improved outlook follows unexpected economic growth in the third quarter, hopes that double-digit inflation could be nearing its peak and relatively full gas storage, although supply concerns have edged up again as temperatures fall below zero.

Inflation was 11.3% in November, after surging to 11.6% in October, the highest in decades.

Joerg Angele of asset manager Bantleon AG said the ZEW index’s recovery was a correction in the trend, following an initial collapse more severe than during the 2008-2009 financial crisis.

In retrospect, this response to the energy crisis was excessive, he said, adding: “Even if (the index) continues to rise over the next few months, we do not believe that this would be an indication of the start of an upswing.”

Future headwinds could include weakening growth in the United States and uncertainty in China as it eases COVID restrictions, Angele said. (Reporting by Thomas Escritt and Rachel More Editing by Paul Carrel and Barbara Lewis)