July 5, 2010 / 12:34 PM / 7 years ago

World Cup fever fuels German growth hopes

BERLIN (Reuters) - Germany’s strong run in the World Cup may be the catalyst for a growth spurt by Europe’s largest economy, as consumers riding the “feelgood factor” of national success dip in to their savings and start spending again.

Worries over the Greek debt crisis, financial market turbulence, government cutbacks and turmoil in Chancellor Angela Merkel’s center-right coalition have combined to keep a lid on domestic demand, capping official growth forecasts for 2010 at a modest 1.4 percent of GDP.

Analysts already believe that figure is too low, and some now see a further boost of between one and three tenths of a percentage point from Germany’s progress to Wednesday’s semi final, coinciding as it does with a labor market upturn and low inflation.

“The good run at the World Cup is without doubt contributing to an improved overall consumer climate in Germany,” said Rolf Buerkl, an economist at the GfK market research group.

“People in Germany are in a good mood and when they’re in a good mood they tend to spend more,” Buerkl told Reuters. “The accompanying conditions are also favorable: unemployment and inflation are low. The World Cup will contribute to growth.”

Euphoria over emphatic and stylish wins against arch rivals England and Argentina has swept the nation and revived the spirit of the ‘Sommermaerchen’ (Fairy Tale Summer) of 2006, when Germans celebrated hosting the previous tournament -- widely viewed as one of the most successful ever.

PRECEDENT

The 2006 World Cup was also credited with boosting Germany’s economy.

Beforehand the government had predicted growth of 1.6 percent, raising it to 2.3 percent after the tournament. In the end, Germany’s GDP grew by 3.2 percent.

It was more than just purchases of flags, football jerseys and television sets that fueled the mini-boom.

A University of Bonn study concluded the 2006 tournament had a lasting positive psychological impact on consumers, contributing to increased investment as well as spending.

“It’s hard to quantify the impact of happiness over winning the World Cup would have on the economy but there is clearly a positive psychological impact from the World Cup that must be considered,” said Thomas Dohmen, who conducted the research.

Defeat in the semi final -- the stage at which Germany exited the 2006 competition -- would not dampen the mood significantly, analysts suggest.

“The good run at the World Cup could be coming at the right time for Germany,” Dohmen added. “The economy is doing pretty well and unemployment is falling. The World Cup could be the spark that consumer sentiment and the economy have been waiting for.”

Crowds of 350,000 have watched this year’s matches at a public viewing venue in Berlin in scenes reminiscent of Germany’s first World Cup win in 1954, the ‘Miracle of Bern’ that fed in to the then West Germany’s own economic miracle.”

“World Cup fever has been a huge shot in the arm for retailers,” Kai Falk, managing director of the HDE retailers’ association, told Reuters. “The string of victories has been great for the mood and consumption.”

Carsten Brzeski, an economist at ING Financial Markets, said the Cup may help Germans shed their ‘Angst-sparen’ mentality -- hoarding money in expectation of bad news around the corner.

“Germans do have a lot of money in their pickets but they’re loath to spend it,” he said. “The psychological effect could be a spark to boost confidence and domestic demand.”

Editing by John Stonestreet

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