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Some of the euro zone\u2019s most upbeat consumers can be found in one of the region\u2019s most sickly economies \u2014 Germany.<\/p>\n
That mismatch was on display on Tuesday when the country was revealed as the only big member of the currency area to have suffered falling output during the second quarter.\u00a0Survey data<\/a>\u00a0for July released concurrently showed yet another improvement in German consumer confidence.<\/p>\n Sentiment in Europe\u2019s biggest economy, according to a gauge compiled by the European Commission, is now just shy of the level it was at in February 2022, when a slump took hold after Russia\u2019s invasion of Ukraine. Neither France nor Italy are anywhere close to that threshold.<\/p>\n The divergence between increasingly cheery consumers and the stop-start path for the country\u2019s economy, which has seen quarterly growth for less than half of Chancellor Olaf Scholz\u2019s time in office, can partly be explained by rising pay.<\/p>\n \u201cThe development of real wages has played into this,\u201d said Christiane von Berg, chief economist at credit insurer Coface. \u201cConsumer sentiment isn\u2019t as strong as before the pandemic, but purchasing power has risen.\u201d<\/p>\n The confluence of increasing pay and weakening inflation pressures has been marked. In the first quarter of 2024, German workers saw a historic\u00a0real wage gain<\/a>\u00a0\u2014 the highest since the data series began in 2008.<\/p>\n Other German sentiment indicators also improved in July.\u00a0<\/strong>The country\u2019s index of services confidence rose while it slumped in nearly all euro-area nations.\u00a0<\/p>\n GfK, whose own consumption climate index last month showed an uptick in Germany too, sees better income prospects and slightly brighter purchasing power as key drivers of an upgrade in sentiment.<\/p>\n Other more fleeting factors than wages may also be at play. One could be the impact of the\u00a0UEFA European Football Championship<\/a>, which Germany hosted for a month starting on June 14.\u00a0<\/p>\n Thousands of fans from all over the continent traveled to the nation, and Berlin alone expected the event to spur visits by 2.5 million sporting enthusiasts. The German team reached the quarter final before losing to Spain.<\/p>\n \u201cIt is highly likely that the euphoria triggered by the European football championship in Germany in large parts of the population plays a role,\u201d Rolf Buerkl of the Nuremberg Institute for Market Decisions said. \u201cIt remains to be seen whether this effect is sustainable.\u201d<\/p>\n Yet past football tournaments don\u2019t show a clear pattern of enduring impact on sentiment. Von Berg wonders whether\u00a0Taylor Swift<\/a>\u00a0played more of a role this time round.<\/p>\n \u201cThe Euro Cup didn\u2019t contribute that much, also given the higher government outlays for the event,\u201d she said. \u201cOn the other hand, the seven Taylor Swift concerts increased consumption while not necessitating high state contributions.\u201d<\/p>\n Whatever the reason for Germany\u2019s cheerier consumers, they might struggle to keep such an upbeat demeanor. Aside from Swift\u2019s concert tour moving on elsewhere and the football championship being over, there may be a limit to how far companies can raise pay in a weak economy.\u00a0<\/p>\n The current number of bankruptcies is at its highest since summer 2016. Falling industrial production in Germany\u2019s once-mighty manufacturing base may make it harder for companies to keep increasing wages, threatening the current joyful mood.<\/p>\n<\/div>\nRecommended Newsletter: <\/strong>CEO Daily provides key context for the news leaders need to know from across the world of business. Every weekday morning, more than 125,000 readers trust CEO Daily for insights about\u2013and from inside\u2013the C-suite. Subscribe Now<\/a>.<\/div>\n