Did the World Cup stimulate German growth?

July 23, 2010

 Did the World Cup stimulate economic growth in Germany?
That’s the $3.6 trillion question on the minds of economists after the Ifo institute reported on Friday  that business sentiment in Europe’s largest economy surged by a record margin in July — a month of fun in the sun for tens of millions of enthralled Germans who cheered their team’s improbably strong run to the semi-finals of the World Cup in South Africa.
Can a soccer tournament half a world away really have a notable impact on Germany’s 2.5-trillion euro ($3.6 billion) economy? Can a few exciting wins in the international soccer tournament really turn notoriously tight-fisted Germans into free-spending consumers? When I posed those questions at the start of July — just after Germany had thrashed England 4-1 in the round of 16 — I ran into some  scepticism. 
But there were also a few contrarian economists out there who also thought the good mood spreading across the country thanks to the lopsided victories in South Africa — and especially the exciting way the young team filled with immigrants to Germany — might lead to slightly higher growth. I’ve lived in Germany for over 20 years and long watched the way so many of them so diligently squirrel away  such significant chunks of their money — as if the next world war or great depression were looming around the corner.

Debt is a four-letter word for many Germans, who it seems would rather save than spend. But every once in a great while, they let loose. And you could feel that happening as the World Cup fever swept the country in June and early July.
So after Germany then brushed Argentina aside 4-0 in the quarter-finals with another magnificient display of attacking football that sent the 42 million Germans watching on TV and at giant public viewing venues into fits of euphoria, I cabled in this story “World Cup fever fuels German growth hopes” to the head office in London on July 5: “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 into their savings and start spending again.”
I managed to find a few economists who thought GDP could indeed be boosted by one to three percentage points thanks to the World Cup-induced positive sentiment prevailing. Germany lost their next match in the semi-finals to Spain. But it didn’t really matter any more because the party was still roaring back home in Germany.
On Friday, the prestigious Ifo economic research institute announced that its business climate index in July rose to 106.2 from 101.8 in June, its highest level in three years and the biggest one-month gain since Germany reunited 20 years ago. It was also the first time since early 1997 — more than 13 years ago — that the Ifo gauge of morale among retailers broke into positive territory.
“Germany is in a party mood,” said Ifo President Hans-Werner Sinn.  A report by my colleague Dave Graham (link here) quoted Commerzbank economist Ralph Solveen saying: “These numbers are just insane.”

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