Germany will not fall into recession due to relief measures that have lowered energy costs, an institute forecast Thursday, the latest indication an economic shock will be milder than feared.
The German government and a string of think tanks previously predicted Europe's top economy will contract in 2023 after Russia's invasion of Ukraine stoked energy prices, sending inflation soaring.
But the influential IfW Kiel institute now expects gross domestic product to expand next year by 0.3 percent, an improvement from their earlier forecast of a drop of 0.7 percent.
"Energy prices for businesses and consumers have risen less sharply than expected, partly as a result of government interventions," said the institute.
The centrepiece of government efforts is a 200-billion-euro ($212-billion) support package, including a cap on gas prices for businesses and households.
Energy costs skyrocketed after Russia sharply reduced crucial gas supplies as tensions soared over its invasion of Ukraine.
The IfW Kiel's Stefan Kooths said the economy could "breathe a sigh of relief" but warned that "no one should sit back in the face of massive risks, least of all economic policymakers".
The energy crisis was still a heavy burden, with German economic output expected to be four percent lower at the end of 2022 and 2023 than it otherwise would have been, the institute said.
Other leading groups are starting to sound more optimistic about Germany's economic prospects.
This week, the Ifo institute said the recession will be milder than expected, with economic output shrinking 0.1 percent in 2023.
And the ZEW institute's economic expectations index gained 13.4 points compared to November -- the third consecutive increase after months of decline.