Germany’s only economic hope is its soccer team and the Euro Cup that it plays at home

Germany’s only economic hope is its soccer team and the Euro Cup that it plays at home


Germany’s economy still languishing for four years after the outbreak of covid in the West. The Gross Domestic Product (GDP) of Europe’s traditional economic locomotive It has barely moved laterally in this time and the prospects are not the best. Much has been said about the exogenous and endogenous factors that have brought about this morass and that have caused the label ‘sick man of Europe’ to be used again. Beyond the structural challenges of a German economy called to reinvent itself in a changing world, optimism does not prevail in the short term either. Experts speak of an almost invisible recovery in 2024 and only football seems to be able to give it some impetus to an internal demand whose improvement requires a change in dynamics.

Five of the main german institutes last week they lowered their growth forecast for this year to just 0.1%, compared to the 1.3% forecast six months ago. The weakness of domestic demand, together with the fall in exports, is dragging down the economy. When German retail sales data for February were published on Maundy Thursday, the pessimism grew.

The retail sales real estate adjusted for seasonal and calendar effects fell 1.9% month-on-month (-2.7% year-on-year), marking the fourth consecutive drop. “The biggest falls were recorded in the categories of street vending, food, fuel and non-specialized stores, while the strongest corresponded to computer equipment and cultural and recreational goods. The weak data suggests that moderate consumer spending in the first quarter will not be able to boost Germany’s recovery,” says Riccardo Marcelli Fabiani of Oxford Economics.

Although at the beginning of last week the GfK indicator consumer confidence had shown some improvement, it remains close to historic lows. In fact, the willingness to spend fell for the third consecutive month and the willingness to save remains close to the levels seen during the financial crisis.

All this leads to the conclusion that consumption-led recovery remains unlikely. “In 2022, the post-lockdown recovery and fiscal stimulus clearly offset the negative economic impact of the Ukraine war and rising energy prices. Last year, private consumption went into hibernation and has yet to wake up “, diagnosed Carsten Brzeski, an economist at ING, in a note to clients in light of the retail sales data.

Looking ahead, Brzeski added, what will probably be the biggest increase in real wages In almost a decade it could, in fact, lead to a rebound in private consumption. However, he warned, with prices still high, geopolitical uncertainty, but also internal politics, as well as the gradual change in the labor market, it is very likely that German consumers will rather opt for preventive savings. “We remain doubtful that Germany will experience a consumption-driven recovery this year,” he acknowledged.

But the expert contemplated an exception: soccer. The ace in the hole that the ING economist talks about is none other than the performance of the senior men’s soccer team in the Euro Cup that takes place from June 14 to July 14 and of which the country is the host: ” After two unexpected victories by the German soccer team in recent days, hopes have returned that the next Euro Cup in Germany – as well as the successful performances of the national team – can boost consumer confidence and, in turn, the consumption”.

“The collective memories of the Germany World Cup 2006 and of the victory in the 2014 World Cup in Brazil, as well as those of a happier Germany and also with better economic results. We don’t want to spoil the party, but the compelling economic evidence linking the celebration and/or victory of major sporting events with economic results has always been very indistinct,” Brzeski explains.

Since the German team won the World Cup held in Brazil in 2014 and became four-time world champions, the role of the Mannschaft In the big tournaments he has been more than discreet. In the 2018 and 2022 World Cups the team did not advance beyond the first phase. In the 2016 Euro Cup, the team reached the semifinals, but in 2020, held in 2021 due to covid, the Teutons remained in the second round.

Looking ahead to the tournament organized by Germany itself this summer, expectations were not the best, but the team’s recent matches, already with the Euro Cup on the horizon, have changed the mood. On March 23, Germany They beat Kylian Mbappé’s all-powerful France 2-0 with enough sufficiency, world champion in 2018 and finalist in 2022. A few days later, Germany beat the Netherlands. To the optimism generated by the good form of players like Ilkay Gündogan (Barça) or Jamal Musiala (Bayern Munich) is added the expectation generated by the return to the national team of Real Madrid player Toni Kroos to command the team.

“Light at the end of the tunnel”

For the moment, this incipient optimism runs into harsh reality. “In the least pessimistic forecasts for the German economy in 2024, private consumption plays a crucial role. Based on the assumed growth of real wages (always in the least pessimistic forecasts), private consumption is expected to rebound over the of the year, bringing the entire economy out of stagnation. Unfortunately, the data since the beginning of the year offer very few indications that this recovery in consumption is really occurring,” states the Swedish bank SEB.

“Predictions that 2024 will be a year of recovery in Germany seem overly optimistic because it is likely that cyclical headwinds persist for a while longer. It is true that energy prices have already fallen. But this has not yet led to a rebound in industrial production, so it is difficult to see why it would happen in the coming months. And interest rates will be reduced only gradually starting in the middle of this year. “Overall, we believe that quarterly GDP growth in Germany will be close to zero for most of this year and any subsequent recovery is likely to be quite modest,” said Andrew Kenningham, chief European economist at Capital Economics.

The axis that marks the middle of the year will be key to deciding if there is recovery. “Some light at the end of the tunnelAlthough 2024 looks likely to be another difficult year of zero growth, GDP will rise again, especially in the second half. Private consumption is recovering thanks to a notable increase in real incomes. The labor market is strong, nominal wage growth is high and inflation is falling. In addition, households have significant savings that can sustain consumption. International demand recovers, boosting exports. Lower interest rates will make it easier for capital spending to increase again,” says Pia Fromlet, strategist at SEB.

“So there are good reasons to expect faster growth, even if it may be limited by long-term challenges in the manufacturing sector and structural factors such as demographics. Tackling these problems requires a strong government and, above all, cohesive, and the current one has found it difficult to demonstrate such qualities. Therefore, the 2025 elections will be important for Germany’s long-term growth,” concludes Fromlet.



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