German business morale rose more than expected in December as Europe's largest economy approached the end of the year with an improved outlook despite the energy crisis and high inflation, a survey said today.

The Ifo institute said its business climate index rose to 88.6 from a revised reading of 86.4 in November.

A Reuters poll of analysts had pointed to a December reading of 87.4.

The indicator measuring how companies assess their current situation also posted a bigger-than-expected rise in December, to 94.4 from a revised 93.2 in November, marking a U-turn after six consecutive decreases. Analysts polled by Reuters had expected a reading of 93.5.

German businesses are entering the Christmas season with a sense of hope, said Ifo President Clemens Fuest.

Signs have mounted in recent weeks that the German economy could stave off the worst of an economic downturn triggered by a plunge in energy supply from Russia after the Ukraine invasion.

Inflation slowed slightly to 11.3% in November from a high of 11.6% the month prior as energy prices eased.

Meanwhile, Ifo was among the economic institutes to revise up their forecasts for 2023, now predicting a milder 0.3% contraction next year.